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BANKING THROUGH THE AGES 



Digitized by the Internet Archive 

in 2012 with funding from 

LYRASIS members and Sloan Foundation 



http://archive.org/details/bankingthroughagOOhogg 



-' 




From a Painting by George Harcourt 



Royal Exchange, London 



GRANTING THE CHARTER FOR THE FOUNDING 
OF THE BANK OF ENGLAND 



BANKING 

THROUGH THE 

AGES 



BY 



NOBLE FOSTER HOGGSON 



ILLUST RATED 



NEW YORK 

DODD, MEAD & COMPANY 

1926 



5 r 



VU<o 






COPYBIQHT, 1926 

By NOBLE FOSTER HOGGSON 



First Printing, February, 1926 

Second Printing, February, 1926 

Third Printing, February, 1926 



THE VAIL-BALLOU PRESS 

BINGHAMTON AND NEW YORK 



PREFACE 

Back in the pre-historic days when our Aryan fore- 
fathers roamed the plains, and when a cow or an ox 
was the standard medium of exchange, the crude cat- 
tle pens in which these forerunners of our modern 
currency were confined became, in effect, the first 
banks. Indeed, our own word "pecuniary" is derived 
from the Latin word pecus, meaning cattle. 

Between those primitive cattle pens and the tower- 
ing citadels of modern commerce stretches a romantic 
story that epitomizes the upward struggle, not of a 
calling alone, nor of a people but of human civi- 
lization itself. For the pyramids of Egypt, the 
temples of Greece, the Street of Janus of Rome, the 
palaces of the Medici, all repositories of treasure and 
centres of financial activity, were tokens of the devel- 
opment of the artistic impulses and ideals of the na- 
tions, but more particularly were they reflections of 
the trade, the commercial relationships and the inter- 
national amities that in our own day find their loftiest 
expressions in the magnificent structures that are the 
outgrowth of the needs of the great financial institu- 
tions of the world. 

In this volume the author gives brief but illuminat- 
ing glimpses of the progress of banking, told not in 

[5] 



^7 



PREFACE 

the academic idiom of the historian but in the informal 
and casual manner of the banker who is conscious of 
the spirit of romance with which his calling is imbued. 
That the story of banking trails back into the dim 
mists of antiquity everyone knows. But the fact that 
this story is replete with intense human interest, with 
colourful detail, with stirring drama and with a sig- 
nificance to civilization so profound as to be unparal- 
leled in the history of any other vocation, comes to 
us with a shock of surprise. Yet wars have been de- 
clared because bankers have financed them, and peace 
has been maintained because bankers have withheld 
aid, and kings and nations and peoples have fought 
and won and lost because their destinies were decided 
in the counting rooms. It is with fragments of 
such a history, told with the vision of a poet who, 
while treating of the details of his narrative is yet con- 
scious of their larger significances, that this informa- 
tive volume deals. 



[6] 



FOREWORD 

The world tends more and more to organize itself 
on a business basis. The underlying principles 
which govern business relationship have proved 
themselves sound and abiding while political and so- 
cial systems have changed from age to age. 

Perhaps, here in America, the breadth and zest of 
our business enterprise were absorbed from the stim- 
ulating freshness men found in the New World. 
But the tradition and structure of business were cer- 
tainly a heritage from the slow and painful develop- 
ment of the Old World. 

F. S. Chapin, author of "Introduction to the Study 
of Social Evolution/' says: "Probably no other sin- 
gle force in human history has been more important 
in bringing about the complete transition from tribal 
to civil society than the growth of commerce." And 
this growth began along the borders of the Mediter- 
ranean basin where our civilization was born. How 
long ago may be judged by what is perhaps the oldest 
commercial record which we have thus far traced. It 
is the rock-graven story in the Valley of Hamma- 
mat, Egypt, describing an exhibition sent by 
Pharaoh Sankh-ka-ra to trade with the people of 
the "Land of Punt," which was possibly the Somali 

[7] 



FOREWORD 

coast of Africa on the Gulf of Aden. This was ap- 
proximately thirty-nine hundred years ago and the 
commercial organization it implies must have long 
preceded it. 

But it was in Babylonia, rather than in Egypt, that 
business first developed as an integral factor in 
the lives of the people. Though Egypt was the 
mother of most of the industrial arts, the people 
were so bound to the land and intercourse among 
them was so restricted that commerce as the fruit 
of those arts never fully matured. 

In the Mesopotamian valley, on the other hand, 
when the curtain of history lifts, we encounter an eco- 
nomic organization as advanced, in many ways, as it 
was in Elizabethan England. This is disclosed in the 
laws of Hammurabi, promulgated in Babylon 2,000 
b. c, and in the many legal and business documents 
from the period of this great king's reign which have 
come down to us in the form of cuneiform inscriptions 
on baked clay tablets. 

These records, of which there is a surprising quan- 
tity, give a fairly accurate picture of what must have 
been the daily life of the community at that time. 

The prosperity of the country depended on the 
preservation of dikes which confined the waters of the 
Tigris and Euphrates and the irrigating canals by 
which the life-giving waters were distributed through 

[8] 



FOREWORD 

the fields. A strong administration naturally kept 
up these important works while a weak and inefficient 
one let them decay. Because the king was thus the 
key to the prosperity of the nation he came to control 
its agriculture and finally all its industries. So, issu- 
ing from the king, there were laws regulating the use 
of irrigation water, the rent of land, grazing, the 
wages of workmen, the business of the commission 
men or agents, debts, interest and virtually every- 
thing pertaining to the economic life of the realm. 

Rent was fixed at about six bushels of wheat an 
acre. Interest might run as high as thirty-three and 
one-third per cent. Imprisonment for debt and sale 
into slavery were legal, but at the end of the fourth 
year the debtor had to be freed. The wages of 
skilled workmen were about thirty-five cents a month 
based on wheat that sold for seven cents a bushel. 

There were many slaves, as there were among all 
conquering peoples of antiquity, but side by side with 
them worked free farmers, laborers and tradesmen 
who were permitted within legal limits to exercise 
their own initiative, to undertake business ventures 
at home or abroad and to make contracts for the 
future. 

These undertakings are set forth and described in 
the Babylonian clay tablets. In this enduring form 
our archeologists have found deeds and leases of land, 
wills of personal and other property, accounts, notes, 

[9] 



FOREWORD 

mortgages, receipts for storage, agreements, and va- 
rious other business forms which must be considered 
the progenitors of those of to-day. 

Neither need business efficiency be regarded as a 
wholly modern development. These clay records 
could be, and were, made in duplicate by the simple 
process of pressing wet clay over a tablet which was 
already baked and then baking the wet impression. 
The process could, of course, be repeated as often as 
desired, or at least until the original impression was 
blurred in transfer. These records were stored in the 
temples or courts in much the same way that our legal 
documents are at present kept in halls of record. 

This general economic system of Babylon was the 
primal influence, in fact, the direct ancestor of the 
system developed by Assyria and Persia, as well as 
by such highly important commercial states as Phoe- 
nicia and Lydia. The bare records naturally do not 
fully disclose the actual practice of business in these 
remote periods but we know that it resulted in great 
prosperity. Here and there particular provinces or 
cities became renowned for their wealth and enor- 
mously rich individuals occasionally appeared. One 
man, for example, is said to have entertained the 
whole of Xerxes' army. 

Directly connected with these prosperous commer- 
cial nations but a little out of spiritual touch with the 
development of their civilizations, were the Jews, later 

[10] 



FOREWORD 

to become the shrewdest of trading peoples. In an- 
cient times Palestine was essentially an agricultural 
community and for that reason the first business prin- 
ciples of the Jews were an outgrowth of farming or 
grazing. 

One of the most striking of their legal provisions 
was that land could not be sold in perpetuity, though 
it could be leased. The date of consummating a lease 
automatically determined its length, as all leases ter- 
minated each jubilee year. A Hebrew could sell 
himself or his children into slavery, but for no longer 
than a seven year's period. It was also compulsory 
to settle or cancel debts at the end of a seven year's 
period. Workmen's wages had to be paid at the end 
of the day on which they were earned. Interest was 
not only illegal but was forbidden by the priest- 
hood, yet it was permissible to take it from for- 
eigners. This provision of Old Testament law was 
of the utmost importance in that it became the basis 
of the pronouncements of the mediaeval Catholic 
Church against usury. 

Athens was superbly situated to become a great 
commercial centre and, driven by the necessity of im- 
porting wheat and other food stuffs for her growing 
population, extended her trade almost to the ends of 
the then known world. At the time of her suprem- 
acy business was closely controlled by the govern- 
ment. Details of administration were largely en- 

en] 



FOREWORD 

trusted to commissions and there were innumerable 
commissioners. Ten market commissioners saw to it 
that articles offered for sale were wholesome and 
priced fairly and ten other commissioners looked after 
weights and measures. Thirty-five grain commis- 
sioners, chosen by lot, fixed the price of grain in the 
market, insisted that the millers sell their meal in 
proper relation to the price of grain, and that the bak- 
ers did not make more than a reasonable profit. Mer- 
chants in the seaports tributary to Athens were com- 
pelled to bring to the market two-thirds of the grain 
imported from abroad. Materially speaking, Athens 
was one of the great cities that lived by bread alone. 

While private trade thrived in the city, Athens and 
all Greece in the Fourth Century b. c, was built so- 
cially on a foundation of slave labor. As against 
100,000 free Athenians, and another 100,000 free for- 
eigners resident in Athens, there were, according to 
Ctesicles, 400,000 slaves. All the great industries, 
such as silver mining and the manufacture of armor, 
depended on slave labor. Nicias paid their masters 
an obol (about three cents of our money) a day for 
each of the many hundred slaves he worked in the 
mines. The father of Demosthenes, the orator, 
owned thirty-two slave sword cutlers, which cost him 
more than one hundred dollars apiece but brought him 
in a yearly profit of six hundred dollars. 

Before the time of Solon slavery for debt among 

[12] 



FOREWORD 

the citizenry was a general cause of complaint, but the 
great law-giver, according to Aristotle, freed these 
people once and for all by prohibiting all loans on the 
person of the debtor. 

Rome after her supremacy presented a new phe- 
nomenon in the business world. Before the Roman 
conquest each of the nations, Persia, Phoenicia, 
Egypt, and Carthage, was content with her own de- 
velopment and without regard for the growth and ex- 
tension of International Commerce. And prior to 
the "pax Romana," that Roman peace of almost 400 
years which spread over the then civilized world, the 
only blending of international interests ever at- 
tempted was that brief conquest of the east by Alex- 
ander of Macedon and his immediate successors. 

In early Rome, as in Greece, slavery for debt was 
permitted under the law. In 450 b. c. the twelve 
tables provided that a debtor might have thirty days 
in which to pay after a judgment had been rendered 
against him, but, that if he failed to settle, his person 
might be seized by his creditors. A father was also 
permitted to sell his son into slavery but after he had 
done so three times the son was released from pa- 
ternal control. 

Tacitus, the Roman historian, tells us that the 
twelve tables limited interest to one-twelfth for the 
lunar year or ten per cent for the solar year but that 
this regulation was constantly evaded. In 342 B. c. 

[13] 



FOREWORD 

Roman citizens were forbidden to accept interest at 
all but they managed to continue their usurious prac- 
tices by arranging loans through the Latins and 
dummies of other Italian states. In 326 b. a, it was 
made unlawful for the first time to pledge the person 
of a freeman for debt. This statute, Livy declares, 
was the beginning of the rise of the plebes. 

Sheep raising, according to Cato, was the most 
remunerative industry in Rome in his time, and led 
to the development of great estates as well as the 
extension of the slave system. 

It was a political rather than a business system 
which Rome gave the people of antiquity. At no 
time did the city ever become a great exporting centre, 
though her seaport, Ostia, where grain and plunder 
were brought in, hummed with activity. Between 
300 and 146 b. c. Rome slowly conquered the Medi- 
terranean world and thus opened hitherto undreamed 
of avenues of wealth. Riches poured in, all taxation 
within the city ceased and the populace received free 
grain. 

Naturally the most direct revenues of the city were 
the spoils of conquest. It was to the political ad- 
vantage of the various generals to send home the 
plunder of their legions and this slowly became a 
continuous golden stream. A second source of 
wealth also based on conquest was the farming of 
the revenues. The taxes to be collected from the 

[14] 



FOREWORD 

various subject provinces were discounted, or at least 
bid in by associations of tax gatherers, who then felt 
free to exact all, and sometimes more than the amount 
they were legally allowed from their districts. This 
profitable business fell chiefly into the hands of the 
knights and proved to be the beginning of their rise 
to power. 

A third source of wealth, and a more legitimate 
one, was likewise based on conquest and naturally 
flowed from it. Commerce inevitably followed the 
sword. As Carthage was subdued and the Mediter- 
ranean freed from pirates, Roman ships swept into 
the Black Sea and even into the Atlantic as far north 
as England. Overland great military highways were 
constructed and these finally became the roads of 
commerce which were rendered comparatively safe 
even to the uttermost rim of the Empire. 

Vast enterprises in time forced the Romans to 
look more kindly on the charging of interest. In 
88 b. c. interest was legally fixed at one per cent 
a month and in 50 b. c. this rate was made standard 
throughout the Empire. In Rome itself, however, 
trade continued to languish. Retail business chiefly 
in the hands of foreigners and freedmen was carried 
on with such utter lack of principle that Cicero 
sweepingly condemned such merchandising as un- 
ethical and unworthy of a Roman's attention. Yet 
Cicero did not condemn commerce as a whole, ad- 

[15] 



FOREWORD 

mitting that it might even be honourable if conducted 
in a large way from a country estate and without too 
much attention to sordid detail. It is not of record 
that Cicero ever tried to conduct a successful busi- 
ness on this basis. 

Senators were still forbidden to enter trade but 
nevertheless managed to do so through the agency of 
freedmen and associations. Thus many freedmen 
rose to wealth under the Empire, and in some cases 
to power. The government continued to exercise 
a benevolent control over economic affairs. The edict 
of Diocletian in 303 a. d. promulgated a long list of 
what the government considered reasonable prices 
and wages. Though it probably did not remain long 
in force it is an important historical document and 
throws a sharp light on the economic conditions of 
that period. 

But the authority of Rome had already begun to 
decay. With the fall of the Empire the roads were 
destroyed, pirates again infested the seas and foreign 
commerce virtually ceased. Business once more be- 
came local and confined to the individual town or dis- 
trict which was obliged to depend largely upon its 
own resources. 

So, as the opportunity for enterprise ceased, the 
value of interest became obscured. The church, re- 
viving the old Jewish law, forbade any interest what- 
soever, though, as a matter of fact, certain exceptions 

[16] 



FOREWORD 

were made in practice. The crusades, those huge en- 
terprises of the church, were financed by loans against 
pledges, but not at interest. 

By the Twelfth Century the guild system had be- 
come well established and for the next four or five 
hundred years European industry was organized on 
that basis. If a tradesman or craftsman needed a 
little money he could borrow it from his guild and 
occasionally the guild entered into operations on be- 
half of all its members. Thus business was again 
bestirring itself in a small way. 

But as commerce gradually increased in the Italian 
cities and the Hanseatic towns of Germany, capital 
came more and more into demand because it could 
be used at a profit. Loans at interest once more be- 
came common, though they were usually in the form 
of discount or exchange. Yet it was not until after 
the discovery of America that interest was legalized 
either in France or in England. Then such a flood 
of gold and silver overflowed into the Old World from 
the mines of Mexico and Peru that business was 
stimulated to a degree where the appreciation of the 
function of interest was completely re-established. A 
new business era had set in. 

Through all this vast stretch of history the opera- 
tion of banking can not be better summarized than 
by H. R. F. Bourne, author of "Romance of Trade," 
who says: "The banker's calling is both new and 

[17] 



FOREWORD 

old. As a distinct branch of commerce and a separate 
agent in the advancement of civilization, its history 
scarcely extends over 300 years, but in a rude and 
undeveloped sort of way it has existed during some 
dozens of centuries. It began almost with the be- 
ginning of society." To-day it is the foundation on 
which is being built the great structure of modern 
civilization. 

Noble Foster Hoggson. 



[18] 



CONTENTS 

Foreword 7 

CHAPTEB PAGE 

I Early Money and the First Coinage . . .25 

II Sacred Safe Deposit Vaults of Ancient Greece 33 

III Banking During the Roman Era of Prosperity . 39 

IV Commercial Development of the Jews ... 45 

V Bankers of the Venetian Fleets 55 

VI Renaissance of Banking and the Bank of St. 

George 63 

VII The Florentine Guild and the Bank of the 

Medici 71 

VIII Finances of Barcelona 81 

IX Birth of the English National Debt and Found- 
ing of the Bank of England 89 

X The Amsterdam Bourse in the Seventeenth 

Century 97 

XI Rise of the Rothschilds . 103 

XII Development of Banking in the Land of the 

Vikings Ill 

XIII Finances of the French Revolution . . . .119 



[19] 



ILLUSTRATIONS 

Granting the Charter for the founding of the Bank of 

England Frontispiece 

FACING 
PAGE 

Bartering in Egypt before the invention of money ... 25 

An ancient Babylonian record in baked clay .... 26 

Ancient Egyptian bracelets used as money 28 

Some of the earliest discovered coins ...... 30 

A Greek temple used in ancient times as a depository for 

valuables 33 

Banking establishments of the Roman Republic . . .41 

The triumph of commerce at Ostia 43 

The house of Aaron of Lincoln 46 

The first coined shekels of the Jews 50 

The Bank of Venice 57 

One of the first Venetian coins 60 

The Palace of St. George, Genoa 63 

Genoese bankers in conference 66 

Lorenzo the Magnificent 71 

Coat of Arms of the Medici 72 

Loggia del Mercato Nuovo 76 

Settlement of accounts by a mediaeval guild . . . . 82 

Mediaeval coinage of Barcelona 84 

The Royal Mint, a portion of the Tower of London . . 91 

English officers receiving and weighing coin at the Ex- 
chequer . 94 

The Amsterdam Bourse 99 

The Forum, Amsterdam 100 

[21] 



ILLUSTRATIONS 

PACING! 
PAGE 

Nathan Rothschild 103 

Coat of Arms of the Rothschilds 104 

Coining or stamping copper money in Sweden in mediaeval 

times . 114? 

Bourse. Banking headquarters in Stockholm . . . .116 

The official burning of the Assignats 119 

One of the Assignats 124 



[22] 



BANKING THROUGH THE AGES 




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BANKING THROUGH 
THE AGES 

CHAPTER I 

EARLY MONEY AND THE FIRST COINAGE 

AS individuals we are grateful enough when 
any of our immediate ancestors leaves us a 
little money to ameliorate the struggle of this 
complicated modern world in which we live. Yet we 
seldom stop to consider what a debt of gratitude we 
owe that dim, remote ancestry of ours which slowly, 
after much puzzled trial and error, evolved the system 
of money on which our whole modern world is based. 
Money is a symbol. It stands for a thing offered 
or a thing desired. It is a standard of value in con- 
venient form and therefore a medium of exchange. 
But in the early days when civilization was just be- 
ginning to crystallize from barbarism, the things 
themselves — cattle, shaped pottery, weapons, woven 
cloth or what not — still had to be exchanged directly. 
This was barter. And from the clumsiness and dif- 
ficulty of barter, a clumsiness and difficulty of which 
we, with our bills, checks, notes and ever ready change 

[25] 



BANKING THROUGH THE AGES 

can scarcely conceive, the invention of money natu- 
rally and inevitably developed. 

There may have been coined money at an un- 
suspectedly early date among the peoples of the sub- 
merged civilizations of antiquity such as that of the 
Cretans, which flowered at Cnossos. There are hints 
of it among the records of the Sumerians of the First 
Babylonian Empire, in India, and in the half legend- 
ary histories of early China. But in the Seventh or 
Eighth Centuries B. c. virtually the whole trade of 
the ancient world centring about the Mediterranean 
basin was being conducted through barter, and the 
former monetary refinements of lost empires, if they 
existed, had been forgotten. 

Barter exists sporadically in the world to-day, 
as among the Esquimaux and in parts of Russia 
where the organization of society has broken down. 
As late as the middle of the last century the British 
economist Jevons, at one time assayer of the Mint 
at Sydney, was able to study the practice in its 
most primitive form. He cites it amusingly to illus- 
trate the embarrassment of Wallace, the natural- 
ist, in the Malayan archipelago* 

"In some of the islands," says Jevons, "where there 
was no proper currency, Wallace could not procure 
supplies without a special bargain and much chaf- 
fering upon each occasion. If the vendor of fish or 

[26] 




AN ANCIENT BABYLONIAN RECORD IN BAKED CLAY 
BROKEN TO SHOW THE DUPLICATE 



EARLY MONEY AND FIRST COINAGE 

other coveted eatables did not meet with the sort of 
exchange desired he would pass on, and Mr. Wallace 
and his party had to go without dinner. . . . The 
first difficulty in barter is to find two persons whose 
disposable possessions mutually suit each other's 
wants. There may be people wanting, and many 
possessing the things wanted; but to allow of an 
act of barter there must be a double coincidence, 
which will rarely happen. . . . Sellers and purchas- 
ers can only be made to fit by the use of some com- 
modity . . . which all are willing to receive for a 
time, so that what is obtained by sale in one case, 
may be used in purchase in another." 

Almost everything, at one time or another, has 
been used as this commodity — wampum, or strung 
shells among our own Indians and the primitive 
Chinese, tobacco by our early colonists, bottles of 
trade gin in West Africa, stamped leather among the 
Carthaginians, iron among the Hittites and the 
British Picts. 

But no matter what form the earliest money took, 
among our Aryan forbears, from Dravidian India 
through Doric Greece to pre-Roman Italy, it was 
curiously associated with cattle. The Aryans were 
nomadic or grazing peoples, before they gatheiod into 
cities, with great herds of oxen, cows, and sheep. 
Cattle were what they chiefly had to barter for de- 

[27] 



BANKING THROUGH THE AGES 

sired luxuries, and so cattle became the customary, 
and eventually the traditional, standard of value. 
The Latin word for money, pecunia, is derived from 
pecus, cattle. 

From time immemorial in India, through the whole 
Vedic Age (2000 to 1400 b. c.) the cow was the chief 
standard of value in matters of barter. As the cow 
is thus mentioned in the Vedas so the ox appears as a 
unit of value in the Homeric poems. When the 
direct transfer of oxen was not convenient or desir- 
able among the Greeks or Trojans, Homer tells us, 
a weight of uncoined gold equivalent in value to an 
ox was fixed and called a "talent." In such a primi- 
tive society wherever precious metals were used as a 
medium of exchange they were regarded as mer- 
chandise — more convenient for exchange in many 
cases, but not in themselves measures of the value of 
other commodities. The ox talents, gradually com- 
ing more into use, were finally coined with the head 
of an ox impressed on one side, and came to be called 
"oxen." 

It was usually thus, as a precious metal, that money 
came into being. Toward the end of the Age of the 
Vedas in India ornaments for the neck were used as 
money. The word "nishka," which originally was 
merely the name of such an ornament, gradually ac- 
quired the meaning of money. In some passages of 
the Sanskrit manuscripts it is impossible to tell 

[28] 



EARLY MONEY AND FIRST COINAGE 

whether a neck ornament or money is referred to. 
The nishka appears to have corresponded to the cop- 
per anklets or bracelets used by the Egyptians of the 
Seventeenth Dynasty (1600 B.C.) as a medium of 
exchange. 

In the Indian Epic period (1400 to 800 b. c.) the 
word "nishka" had definitely come to mean a gold 
piece; and a silver "karshapana," or coin, is men- 
tioned in various Buddhist works. Somewhat later, 
metal pieces begin to appear, marked to show their 
weight and hence their value. These copper coins, 
which were the basis of value in India in the Seventh 
Century b. c, weighed about 150 grains and show by 
their punch marks that they were struck, not by the 
government, but by private individuals. 

There were also silver coins in India, oblong or 
square in shape, and apparently cut from strips of 
metal. They were without inscription except for the 
rough outlines of natural objects such as the sun, a 
man, or a tree, which perhaps sufficed to identify the 
person who issued them. From their shape, no 
doubt, the writers of South India called these coins 
"salakas" or dominoes. 

Money in Egypt evolved in much the same way. 
As late as the New Kingdom, which dates from 1600 
B. c, there was no coined money. Up to that time 
the value of commodities, for purposes of exchange, 
had been stated in weights of copper. 

[29] 



BANKING THROUGH THE AGES 

The copper anklet, previously mentioned in con- 
nection with the Indian nishka, weighed a "deben" 
and was worth about five cents in our money. A 
deben of silver was valued at about $4.00. A com- 
mon price for an ox was 120 debens of copper, or 
$6.00 ; while a bushel of wheat sold for approximately 
two copper debens, or ten cents. 

The first actual coins in Egypt seem to have come 
from the iEgean Islands, perhaps through Minoan 
traders. The first coins struck within Egypt itself 
were the silver coins made by the Persian conquerors 
of Egypt (525 B.C.), bearing an owl and flail de- 
sign. 

One other interesting monetary development in the 
ancient world precedes the period of definite histor- 
ical coinage — the silver units used by the Babylonians, 
and probably adopted by them from an earlier 
Sumerian people who had already established a 
flourishing civilization around the upper waters of the 
Persian Gulf. Here the lowest unit was a grain of 
silver, which weighed about as much as a grain of 
barley. One hundred and eighty such grains made 
an ordinary shekel and 360 grains constituted a great 
shekel. Sixty shekels made a "maneh," and sixty 
"manehs" a talent. These units suggest the division 
of the circle into 360 degrees and of time into hours 
and minutes, both contributions of Chaldean or Su- 
merian astronomical science to our heritage of culture. 

[80] 





God Coin 
Persia 



Crab of Cos 
Asia 




Lion's Head of Lydia 
Asia 




Wheel of Chalcis 
Greece 



SOME OF THE EARLIEST DISCOVERED COINS 
SEVENTH CENTURY, B.C. 



EARLY MONEY AND FIRST COINAGE 

The elaborate mathematical system of the Sumerians 
progressed by twelves instead of tens, and this system 
is imbedded in many of our conceptions to-day, 
especially those involving the division of time. 

As early as the ascendency of the Babylonians 
there is mention of silver being stamped with the 
image of some god or temple — a device like the later 
one of the Greeks who used "Temple" as well as 
other coins. Despite such official impressions, how- 
ever, the metal coins passed by weight and not by 
fixed value — in a word, they were still merchandise. 
In time various shekel pieces came to be cast in half 
shekel, shekel and five shekel pieces — representing 
probably the first uniform coinage. 

That cast money was being coined by the state 
in Nineveh may be gathered from graven records 
of the Assyrian Sennacherib, who thus describes 
the casting of huge winged lions for the palace: 

"According to the commands of the god, I fashioned 
molds of clay, and poured the bronze as easily as 
though I iwere casting half shekel pieces." 

This date, about 690 B. c, perhaps fixes the be- 
ginning of real coinage, though Gyges of Lydia, 
whose reign was synchronous with that of Senna- 
cherib's successor, Esarhaddon, is generally credited 
with having issued the first coins. Herodotus, in 

[31] 



BANKING THROUGH THE AGES 

Book I, says: "The Lydians are the first of all na- 
tions that we know of that introduced the art of coin- 
ing gold and silver." 

In China the earliest tokens seem to have retained 
in their very shape the idea of the barter from which 
they originated. Those of the state of Chi (1122 to 
224 b. c. ) were in the form of knives, spades, axes, 
bells and other familiar objects, suggesting that the 
knife piece was of the value of a knife, the spade 
piece of a spade, and so on. The knife tokens were 
all pierced for stringing, as were the shells used in 
the earliest dawn of Chinese history. Round cast 
coins, perforated with a square hole in the middle, 
were introduced in the Chow Dynasty, about 600 b. c, 
but they were still inscribed as "equal to one axe," 
one spade, one gong, or one knife. Perforation is 
still a familiar attribute of Chinese coins. 

Thus, through the ages and in all countries which 
developed a civilization, money of a sort struggled 
into existence. With the development of the art of 
casting, coinage passed from its primitive form into 
something similiar to that which we use to-day. 



[32] 




A GREEK TEMPLE USED IN ANCIENT TIMES AS A 
DEPOSITORY FOR VALUABLES 

The proportions and details of this building have been used as an 
inspiration in designing many modern bank buildings. 



I 



CHAPTER II 

SACRED SAFE DEPOSIT VAULTS 
OF ANCIENT GREECE 

'TfF a man gives to another silver, gold, or anything 
else to safeguard, whatsoever he gives he shall 
show to witnesses, and he shall arrange the con- 
tracts before he makes the deposits." So ran the 
statutes of Hammurabi as early as 2000 b. c. Thus 
twenty centuries before the Christian era we find the 
Babylonians placing their treasure for safe-keeping 
with trusted men, to whom they paid as much as one- 
sixtieth of the treasure for that service. 

It is true that the Egyptians had what might be 
looked upon as treasure houses long before this, and 
even the Pyramids might be considered safe deposit 
vaults, for in the belief that the soul would live as 
long as the mummy remained intact, the wealthy 
Egyptian planned for the safe-keeping of his mummy 
with more concern than for the most precious of his 
possessions. With this very personal and distinctly 
mortuary attitude prevailing along the Nile, it is not 
surprising that we are obliged to leave this river in 
favour of the Euphrates to find a practical conception 
of trust responsibilities. 

[33] 



BANKING THROUGH THE AGES 

From Greece, however, came the real inspiration 
for the safe deposit department as we know it to-day. 
Unlike Egypt and Babylonia, both blessed with 
strong central governments, Greece was divided into 
many practically independent states and cities which 
were usually at war with one another or with foreign 
powers. When not at war they were in a constant 
state of unrest through the activities of opposing 
political factions. 

By sad experience, or perhaps by happy accident, 
the Greeks discovered in the Temple the only safe 
depository which the turbulent times afforded, and 
which usually remained inviolate. The strong re- 
ligious principles of the educated classes, as well as 
the superstitions and fears of the unscrupulous and 
non-believers, combined to create about the Temple 
an atmosphere of greater security than could have 
been attained by any mechanical devices then known. 

To the Temples of Greece, therefore, one may look 
for the first real safe deposit vaults as well as for the 
beginnings of the functions of our banks of domestic 
and foreign commerce. On behalf of timid or absent 
owners, the priests of the Temples received money, 
precious stones, silver and gold plate, jewelry, im- 
portant documents, and practically every other form 
of valuables. 

For the safeguarding of treasure there were at first 
no standard charges made by the Temple banks, but 

[34] 



DEPOSIT VAULTS OF ANCIENT GREECE 

records show that the obliging priests received liberal 
presents for their conscientious services. Later when 
the Temples safeguarded valuables as a matter of 
business, they made regular and substantial charges 
and the records indicate that they also lent their own 
funds at interest. 

In the history of some of the more important Tem- 
ples in which the handling of treasure grew into 
an important activity, one may trace many of the 
functions of our modern bank. In the Parthenon, 
for example, and at Corinth, a special chamber called 
the "Opisthodomus" was partitioned off as a storage 
vault for gold and silver belonging to the Temple it- 
self and for valuables deposited by the worshippers. 
In some Temples without such treasure rooms, a por- 
tion of the portico was screened off from the central 
passage for use as a combination safety-vault and 
museum. 

With private bankers as with the smaller Temples 
where there was no equipment for the proper and 
safe storage of deposited treasure, such as separate 
vaults or individual boxes, many mistakes were made 
resulting in claims which had to be settled by the 
courts. A typical case is that of a Greek named 
Timosthenes who left some valuable cups with the 
best known banker of Athens, a foreigner named 
Pasion. The banker loaned the cups to a relative to 
be used at a banquet and they were never returned. 

[35]' 



BANKING THROUGH THE AGES 

The case was brought into court to settle the value 
of the cups, and Timosthenes was indemnified. 

Inventories of the Parthenon incised on marble 
tablets show that its storeroom was equipped with 
shelves and cupboards; various objects are listed as 
being on the first, second or third shelf or in a certain 
cupboard. 

When the richer Temples at Delphi and Olympia 
became overcrowded with gold and silver and other 
valuables, small treasure houses were built within the 
sacred precincts to accommodate the overflow. Rows 
of these at Olympia, described by Pausanias, the 
Greek traveler, were designed like miniature Tem- 
ples. 

Although superstition and religious veneration 
kept these structures safe from ordinary robbers and 
sometimes even from raids during violent revolutions, 
ambitious conquerors and wilful tyrants, now and 
then, swept aside all such scruples and appropriated 
the treasures for their own aggrandizement. The 
Persians during the invasion of Xerxes felt no qualms 
about the sacking of the great Temple at Delphi. As 
a matter of desperate necessity it was again looted by 
the Phocians about 350 b. c. While Dionysius the 
elder (430 b. c-367 b. c.) of Syracuse was carrying 
out his operations against the Carthaginians, he 
seized from the Temples of Syracuse golden mantels, 
golden vases, crowns, silver tables, and even the 

[36] 



DEPOSIT VAULTS OF ANCIENT GREECE 

golden beard of Esculapitjs, and having found this 
method of securing funds for his campaigns success- 
ful, carried the practice into other lands, even allying 
himself with the Illyrians for the express purpose of 
plundering the Temple of Delphi, in which enter- 
prise, however, he was defeated by the Greek troops. 

With the Temple at Agylla he was more successful, 
relieving the Etrurians of treasure valued at 1000 
talents, or about one million dollars. Sailing back 
from one of these raids before exceptionally favour- 
able winds, the graceless plunderer cynically re- 
marked to his friends, "You see how the Greek gods 
favour sacrilege." 

In those hardy days, even if at intervals some ruth- 
less Dionysius resorted to plunder, the rights of prop- 
erty were beginning to be respected and many phases 
of the banking business were established on solid 
foundations. Nevertheless, despite the atmosphere 
of religious awe which surrounded the Greek Tem- 
ples and tended to keep them inviolate, these treasure 
houses of the Hellenes were by no means as efficient 
and secure as the average safe deposit vault of to- 
day. 



[37] 



M 



**TV yfTONEY is indeed the most important thing 
in the world; and all sound and success- 
ful personal and national morality should have 
this fact for its basis/' 

Geo. Bernard Shaw. 



CHAPTER III 

BANKING DURING THE ROMAN ERA OF 
PROSPERITY 

IMPRESSIVE, indeed, and vividly suggestive of 
the economic life of the ancients, are the ruins 
which remain of what were once the banking 
establishments of the Roman Republic. These of- 
fices were situated in a row along the north side of 
the Forum on the street of Janus, the Wall Street 
of the time. This locality named after the double- 
faced God, Janus, is known to have been frequented 
by bankers and money-changers from the fourth cen- 
tury b. c, although the present ruins are of buildings 
which date from a period two hundred years later at 
about which time they were destroyed by fire. When 
reconstructed they were amalgamated into The 
Basilica Aunilia, the new courthouse built by Lucius 
Aeurilius Paulus, overlooking the public square. 

The offices were distinguished by numbers on the 
pillars of the portico outside. There is a reference 
to one of them in the works of Catullus. 

Our sense of the actuality of ancient civilizations 
is, perhaps, never stirred so strongly as when we look 
upon the scenes of their every-day transactions. The 

[39] 



BANKING THROUGH THE AGES 

Parthenon and the Coliseum fail to give us that feel- 
ing of intimacy with the Greeks and the Romans 
which we enjoy when we see what is left of the less 
pretentious buildings in which the ordinary business 
of the day was carried on. 

The well-worn marble floors of these rediscovered 
offices were found covered with loose coins which must 
have been scattered at the time of a great fire, as 
many coins have been melted and welded together 
and cemented to the slabs of the pavement. 

An ancient bank consisted of a large, solidly con- 
structed, though sparsely furnished and badly lighted 
apartment in which the money-changer sat on a high 
stool with his coins spread out before him behind a 
bronze mesh screen. His clients entered from the 
portico in front ; now a lawyer to deposit the fee won 
in the Forum across the way ; now a young patrician 
on his way to the circus, comes to draw a thousand 
resteatii to bet on his favourite gladiator ; now a Thes- 
salian slave to add a little to the growing sum with 
which he hoped to purchase his freedom. 

An American bank teller would speedily have felt 
at home in these surroundings. We are apt to think of 
Roman bankers merely as money-changers, forgetting 
that the broad and complicated commerce of Rome 
required a banking system of nearly as high a de- 
velopment as our own. A part of an ancient banker's 
daily routine included the opening of accounts, the 

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BANKING DURING ROMAN ERA 

receipt of deposits, the issuing of bills of exchange, 
the furnishing of letters of credit, the making of loans, 
the purchase of mortgages ; in fact most of the trans- 
actions performed by a bank cashier of to-day and his 
assistants. Interest was paid on time deposits, such 
deposits being termed credits as distinguished from 
those which were subject to call, and on which no 
interest was paid. The sanctioned rates of interest 
were, at first, high, but decreased in the last days of 
the Republic until, under the Empire, they were close 
to the modern rates, two and a half per cent being 
once recorded. 

Judging by the extensive and varied facilities of- 
fered to Roman citizens for the safe keeping and the 
safe investment of the sums of money which consti- 
tuted the surplus of their yearly balances and savings, 
it is evident that thrift as well as profitable investment 
were practiced and encouraged. 

Although we have no evidence as to the existence 
of regular savings banks, we know that money could 
be put at interest or laid by for future emergencies in 
three ways: First, by entrusting it to bankers; 
second, by placing it in the care of priests ; and third, 
by depositing it in safes guarded by the State. In 
the first case, which was to save the depositor the 
trouble and danger of keeping the money and making 
payments from his home, the banker received the de- 
posit but paid no interest. He simply honoured the 

[41] 



BANKING THROUGH THE AGES 

checks of the client as long as there was a balance in 
his favour; but when the money was deposited as a 
creditum, that is, for a specified period of time, at 
interest, the banker was allowed to use and invest it 
to the best of his judgment. 

Ample facilities were furnished by the State for 
the safe-keeping of money and other valuables. 
Public repositories were maintained by the govern- 
ment in which the citizens were given the use of 
guarded safe deposit vaults. The ruins of the build- 
ings used for this purpose, some of which are of vast 
extent, give a very definite idea of the solidity of the 
Roman economic system and the secure and firm 
foundation upon which its wealth was founded. 

The true foundation of Roman prosperity was, 
however, the independence and self-sufficiency of the 
Roman citizen, and, when these were corrupted and 
destroyed, the whole superstructure was undermined. 
When the emperors converted the repositories of the 
Republic into storehouses for the keeping of grain to 
be doled out to the mobs instead of providing them 
with work from which they could earn sufficient to 
meet their necessities, then the overthrow of Roman 
rule and prosperity was imminent. Partem et cir- 
ceuses were the forerunners of their downfall. 

To a considerable extent the success of Rome 
sprang from an essential quality which was the thor- 
ough and enduring manner in which details were 

[42] 




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BANKING DURING ROMAN ERA 

worked out. The truth of this is strikingly apparent 
when we study such relics of Roman greatness as we 
have been discussing. It savours of triteness to say 
that the Romans built for eternity, yet the words are 
expressive. The utmost care was given the smallest 
detail, and construction of a superficial nature was 
scornfully avoided, whether in the building of a public 
repository or the organization of a department of 
the government. 



[43] 



**TV ill* ONE Y which represents the prose of life, 
JkV JL an ^ which is hardly spoken of in the 
parlors without an apology, is in its effects and 
laws as beautiful as roses." 

Emerson. 



CHAPTER IV 

COMMERCIAL DEVELOPMENT OF 
THE JEWS 



w 



'E are accustomed to-day to regard the 
Jews as a great commercial people with a 
special aptitude for banking, finance and 
business of all sorts. But this direction of their 
genius was forced on them by their evolutionary en- 
vironment as a homeless and oppressed race. 

Until they were driven from their homeland the 
Jews were probably the least commercial people of 
civilized antiquity, though they were surrounded on 
all sides by other Semitic races who had developed 
business as a fine art. The Jews, however, in the be- 
ginning, were nomads who, after settling down in the 
Land of Canaan, devoted themselves to agriculture 
in the intervals between their rather unsuccessful 
wars with the original land-holders, the Canaanites, 
on the north, and the Philistines, on the south. The 
Philistines, who do not appear in the earlier stories 
of the Jews, seem to have been a Mediterranean peo- 
ple who were driven into Palestine when Cnossus, 
in Crete, was destroyed, 1000 b. c. 

The second reference to money in the Bible de- 

[45] 



BANKING THROUGH THE AGES 

scribes a real estate transaction in which the Jews 
clearly enough appear as nomads, or tent people, and 
the Canaanites as town-dwellers. The thirty-third 
chapter of Genesis tells how Jacob came to "Shalem, 
a city of Shechem". 

"And he bought a parcel of a field where he had 
spread his tent at the hand of Hamor, Shechem's fa- 
ther, for an hundred pieces of money.' ' 

This was undoubtedly the currency of another race 
for, until the second century b. c, the Jews continued 
to weigh out gold and silver as payment for mer- 
chandise or used the money current in Syria, Persia, 
Phoenicia, Athens, and the cities of the Seleucidae. 
Simon, the Maccabee, is said to have been the first to 
issue the shekel as a coin. 

But this is late in the story of Israel. Por many 
centuries the Jews were neither craftsmen nor trad- 
ers. In I Samuel, Chapter 13, it is stated: "There 
was no smith throughout all the land of Israel. . . . 
But all the Israelites went down to the Philistines to 
sharpen every man his share and his coulter." Hence 
it would seem that they had not even learned the 
rudiments of metal working. 

Under their third king, Solomon, the Jews enjoyed 
a brief burst of glory, which has become a tradition of 
great grandeur, though compared to the magnificence 
of other potentates of his time it was very limited in- 
deed. Solomon's reign may be set down as some- 

[46] 




THE HOUSE OF AARON OF LINCOLN, AT LINCOLN, 
ENGLAND TWELFTH CENTURY 



COMMERCIAL DEVELOPMENT OF JEWS 

where around 960 b. c. and its success seems to have 
been largely due to his alliance with the Phoenicians. 
This advanced people supplied the Jews with what 
they lacked, taught them the ways of craftsmanship 
and commerce, and thoroughly exploited their king- 
dom as a highway for trade with nations beyond the 
Red Sea. 

When Solomon decided to build his temple he im- 
ported Hiram, the worker in brass, from Tyre, to 
make the brazen vessels and decorations used in his 
famous monument. In fact the whole impetus 
toward a wider civilization among the Jews at this 
time seems to have come from the Kingdom of the 
Phoenicians. We are told in I Kings, Chapter 9, 
how Solomon constructed a navy of ships and sent 
them to Ophir. But this navy, beside the servants 
of Solomon, was manned by "shipmen that had 
knowledge of the sea" sent by Hiram, King of Tyre. 
Obviously the Jews had no previous maritime ex- 
perience. 

Precious metals were also imported into Israel. 
King Hiram sent Solomon six score talents of gold, 
together with the timber and metal for the temple 
and was repaid by the cession of twenty cities to- 
gether with great quantities of wheat and oil. In 
the Jewish fleet which the Phoenicians manned, Sol- 
omon was later able to bring gold to the amount of 
420 talents from Ophir. Though gold was thus 

[47] 



BANKING THROUGH THE AGES 

brought in there was no coinage in general use until 
after the overthrow of Jerusalem by the Assyrians. 

Indeed, the laws of the Jews were wholly unfa- 
vourable to the financing of trade or the development 
of banking. 

In Exodus, Chapter 12, stands the injunction: 
"If thou lend money to any of my people that is poor 
by thee, thou shalt not be to him an usurer, neither 
shalt thou lay upon him usury." In Leviticus, 
Chapter 25, is found a similar command: "Thou 
shalt not give him the money upon usury, nor lend 
him thy victuals for increase." 

Such biblical rules as these virtually kept the Jews 
from banking throughout the early ages and exer- 
cised a tremendous influence upon the development 
of banking in the Middle Ages. Yet the Israelites 
were crowded in between the Assyrians and other 
peoples of western Asia, all of whom had legalized 
the use of interest from time immemorial. It is pos- 
sible for this reason that in Deuteronomy, Chapter 
23, it is expressly declared that "Unto a stranger 
thou mayest lend upon usury." 

This permission was the foundation upon which 
Jewish banking developed many centuries later. In 
fact the restrictions against usury may have some- 
what broken down even as early as the Roman occu- 
pation, during the life of Christ, for in the parable of 
the unfaithful servant (Luke, 14) we find this 

[48] 



COMMERCIAL DEVELOPMENT OF JEWS 

question: " Wherefore, then, gavest thou not my 
money into the bank that at my coming I might have 
required mine own with usury?" It was a time of 
the violation of tradition. The Herodian family, 
ignoring the injunction against graven images, was 
issuing a coinage adorned with the representation of 
living things. 

Many Jews had begun to leave Palestine. In 
Alexandria, during the reign of the Ptolemies, there 
were more Hebrews than there were in Jerusalem 
itself. And after the fall of Jerusalem, of course, 
they were scattered throughout the territory of the 
Roman Empire. It is then that they began to de- 
velop tendencies toward trade and commerce as well 
as toward philosophy, medicine and such other sci- 
ences as then existed. Under the Roman Emperors 
the Jews, with certain exceptions, were compelled to 
reside in restricted areas. Thus, not having access 
to the land, they were obliged to turn to trade. 

Under the laws of the Roman Empire interest was 
legal at one per cent a month. As the Jews were 
expressly permitted by their own laws to take interest 
from non-Jews the field of money lending was left 
open to them and they gradually began to specialize 
in it. 

When the Mohammedans swept over northern 
Africa and Spain the Jews found themselves in the 
midst of a people whose religious authorities frowned 

[49] 



BANKING THROUGH THE AGES 

upon interest. Among these also the Jews gradually 
entered the money lending business, though at first 
rather timidly and in a small way. There are ref- 
erences to their operations in Alexandria in the Sev- 
enth Century, and in Spain soon after the Moorish 
conquest in the Eighth Century. 

Among the Christian countries France, under 
Charlemagne, was a haven for the Jews. Char- 
lemagne, that great liberal, was unusually lenient for 
his time and even permitted the Jews to hold land. 
Louis, the Pious, in the first half of the Ninth Cen- 
tury, was still more kindly disposed toward them and 
his reign was long looked back to as a golden age. 

Meanwhile one synod of the church after another 
began to take a stand against lending at interest. 
As early as the Eighth Century there were synodic 
denunciations of usury and disapproval of lending at 
interest was established as sound Christian doctrine. 
This attitude was based not merely upon the Old 
Testament but upon the statement of Aristotle that 
"Money in itself cannot grow." 

Finally in 1146, Pope Eugenis declared all inter- 
est void, and in 1179 Pope Alexander III publicly 
excommunicated all usurers. The effect of this bull 
upon the fortunes of the Jews was curious. The ex- 
coitimunication, of course, did not embrace the Jews 
and only tended to make them still more valuable 
commercial agents, especially to kings and rulers of 

[50] 




THE FIRST COINED SHEKELS 
OF THE JEWS 



COMMERCIAL DEVELOPMENT OF JEWS 

provinces. Israelites, as a result, became the money 
lenders for rulers in many lands and districts of 
western Europe. It was possible for them to lend 
the money of a prince at interest where a Gentile 
could not, if he wished to remain a good Christian. 
It was also possible, and even customary, for the 
ruler to seize their property after the profits had ac- 
cumulated. 

So useful did the Hebrews become that some 
monarchs objected to having them converted to 
Christianity. Both the kings of England and of 
France demanded compensation for such conver- 
sions, and until 1281 the English king declared the 
property of a converted Jew forfeited to the crown. 

One of the most picturesque of these early Jewish 
financiers was Aaron, of Lincoln. He was born in 
the city for which he was named some time before 
1125 and died in 1186. His financial operations were 
so wide that he had agents in a number of the English 
cities. Oddly enough, one of his chief sources of 
profit was advancing money for the construction of 
abbeys and monasteries. It was through his accom- 
modation that St. Albans, Lincoln Minster and at 
least nine Cistercian abbeys were built. At his death 
these monasteries still owed him equivalent to $24,- 
000 which, judged by the time, was an enormous 
sum, as wages were then only seven cents a day. 

He also advanced money on houses, armour and 

[51] 



BANKING THROUGH THE AGES 

grain. At his death Henry II seized his property 
as the estate of a Jewish usurer, devolving by right 
to the crown. Henry used the cash to wage war 
against Philip Augustus of France, while the ac- 
counts receivable formed a special department in the 
treasury. Aaron's house still stands in Lincoln and 
is probably the oldest private dwelling in all Eng- 
land. 

The seizure of Aaron's property after his death 
was typical of the period. Royalty professed to 
believe that the Jews had no right to wealth gained 
by money lending and that it was mercy enough to 
allow them to hold it while they lived. This belief 
grew into a custom which proved extremely con- 
venient, not to say remunerative, whenever a rich 
Jew died. 

Aaron of York was another English Jew most of 
whose property, acquired by the practice of interest, 
went after his death, to the king. He himself stated 
that he satisfied the demands of Henry III to the 
extent of 30,000 marks in silver and 200 marks in 
gold. 

A similar sufferer was Ezmel de Ablitas, a wealthy 
Jew of Navarre. His business of usury was very 
extensive but he was compelled to grant large loans 
to the King of Aragon and the nobles of Navarre, 
none of which he ever recovered. After his death his 

[52] 



COMMERCIAL DEVELOPMENT OF JEWS 

property was confiscated by the Queen of Navarre 
on the same grounds urged by other rulers whose ex- 
cessive piety led them to filch the estates of all Jews 
who died rich enough for royalty to consider. 



[53] 



**TTT is not by augmenting the capital of the 
II country, but by rendering a greater part of 
that capital active and productive than would 
otherwise be so, that the most judicious operations 
of banking can increase the industry of the 
country." 

Adam Smith. 



CHAPTER V 

BANKERS OF THE VENETIAN FLEETS 

THE flat mud islands on which Venice stands 
were made by the waters of eleven rivers flow- 
ing into the Adriatic. Her intricate lagoons 
made her a city of asylum and refuge when Attila 
drove her first inhabitants before him from the north. 
The Adriatic, lapping against her door sills, made 
Venice the carrier of Europe's might into the East 
throughout the Crusades. And the waters of the 
Mediterranean, subdued and controlled by the prows 
of her galleys, made her the mightiest city of the con- 
tinent when Constantinople fell in 1204 and Venice 
claimed and received, in her own words "one half and 
one quarter of the Roman Empire." 

Venice eventually became mistress of the seas, as 
far as they were known in the Middle Ages. But 
long before that the city had launched upon the mari- 
time career which was to bring such a rich yield. 
Never has there been a city where business was more 
remunerative or more highly regarded. By the end 
of the thirteenth century Venice had become an ab- 
solute oligarchy of the wealthier families who formed 
themselves into a closed guild for no less a pur- 

[55] 



BANKING THROUGH THE AGES 

pose than the exclusive exploitation of the Levant. 

Business was more important to many of the 
Venetians than religion, even in a religious age. As 
early as 991 Orseolo II had made a commercial treaty 
with the Mohammedans and a little later, after the 
conquest of Dalmatia, the city had established con- 
trol of the Adriatic. Even at that time there was a 
municipal mint which issued the first reliable coinage 
of the Middle Ages. 

But it was the Crusades which gave Venice her real 
start along the pathway toward imperial wealth. 
Throughout the First, Second and Third Crusades, 
Venice, together with Genoa, her great rival, sup- 
plied the transport which moved the armies of the 
Lord against the Saracens — always at a handsome 
profit. As a result Venetian settlements began to 
spring up all over the East. There were Venetian 
quarters both in Sidon and in Tyre and it is said there 
were fully 200,000 Venetians in Constantinople when 
the Byzantine Emperor Manuel stripped them of 
their possessions and turned them out, precipitating 
a war with the mother city. To carry this particular 
war to its disastrous conclusion Venice was obliged 
to levy a forced loan of one per cent on all net in- 
comes, guaranteeing the loan at four per cent. This 
was in 1171 and is supposed to be the earliest instance 
of the issue of government bonds. 

When the Fourth Crusade was proclaimed at 

[56] 




~ ^*WfS> ih-\ ,******' 



■" ■ . .. "'■• : ,: ..... 









BANKERS OF VENETIAN FLEETS 

Soissons it marked the dawn of the full glory of 
Venice. The city agreed to transport 4,500 horses, 
9,000 knights and 20,000 foot soldiery together with 
provisions for one year at a price of 85,000 silver 
marks of Cologne and one half of all conquests. 
Dandalo was the Doge at that time and proved him- 
self not only a clever financier but a political and 
military genius. 

When the time came to move the great army the 
Crusaders could not pay. Zara and Dalmatia were 
at the time in revolt against Venice so Dandalo 
agreed to postpone exaction of the payment if the 
Crusaders would undertake the suppression of the 
rebellion, which they did promptly. But Dandalo 
had only begun his operations. He managed to turn 
the whole Crusade against Constantinople, which had 
so thoroughly humbled Venice thirty years before. 
Largely through his own intrepid leadership the cap- 
ital of the Byzantine Empire was captured and 
sacked. That was when Venice received "one half 
and one quarter of the Roman Empire." Venice 
was no longer a city. She had become a European 
power. 

Thenceforth the community became absorbed in 
trade. Each year Venice acknowledged its indebted- 
ness to the sea when the Doge cast a ring from the 
state barge into the waters thus betrothing the city as 
the "bride of the Adriatic." Each year the control 

[57] 



BANKING THROUGH THE AGES 

of affairs came more into the hands of the great 
patrician families, organizing themselves for commer- 
cial loot. Finally in 1308 all power was concen- 
trated in the terrible Council of Ten. Wars, 
government, statesmanship — all were directed toward 
the one ideal of trade expansion. 

Naturally, in a city-state organized on this basis, 
finance and banking had developed as an early neces- 
sity. The germ of a state bank was planted in 1160 
when the government borrowed 150,000 silver marks 
from half a dozen of the more important merchants. 
This was the Monte Vecchio, known as the old debt. 
Thirteen years later came the forced loan to prose- 
cute the war with Constantinople which added greatly 
to the government's financial responsibilities. 

The right of banking remained virtually free in 
Venice but does not seem to have been fully used. 
Before 1300 we read only of camsores, or money 
changers, with benches in the market. Even these, 
however, made loans at interest. From 1318 there 
are references to a bancherius de scripta which im- 
plied genuine bankers who received deposits of 
money. Thereafter many of the patricians became 
bankers. 

By 1300 the city was already using bills of ex- 
change to send money to its representatives abroad. 
These were really business agents and made frequent 
and full reports of commercial opportunities more 

[58] 



BANKERS OF VENETIAN FLEETS 

efficient than those of any consular service to-day. 

In many cases loans made by the Venetian bankers 
were a form of bottomry as they depended for se- 
curity on the prosperous outcome of some venture by 
sea. The risk being great, the interest was corres- 
pondingly high, averaging in the fourteenth and fif- 
teenth centuries, perhaps twenty per cent. 

Shakespeare's "Merchant of Venice" reflects con- 
ditions on the Rialto at this time, for Antonio's ship- 
ping venture furnished the banker Shy lock's 
opportunity for revenge. The Jews, however, were 
accepted as bankers only on probation, and their li- 
censes were frequently revoked. 

Ventures, such as Antonio's, were part of the daily 
life and business of Venice. Besides innumerable 
minor voyages to nearby ports in the Mediterranean, 
great trading fleets were periodically sent out to dis- 
tant countries. For these the state leased galleys 
already supplied with arms, ammunition and food 
and for protection dispatched naval convoys. 

The Tana fleet sailed to the Black Sea for trade 
with the Russians and Tartars ; the Syrian fleet sailed 
to Asia Minor; the Roumanian fleet skirted Greece 
and penetrated to Roumania ; the Egyptian fleet an- 
chored at Alexandria; while the Flanders Squadron 
sailed through the straits of Gibraltar to trade in 
Bruges, Antwerp and London. Though the fleets 
were under government control, each ship was a 

[59] 



BANKING THROUGH THE AGES 

separate venture with its own owner who, in turn, had 
his private banker. 

The camera, or bank, which made loans to the gov- 
ernment, was receiving about 200,000 ducats in inter- 
est at the end of the fourteenth century. By special 
concession foreigners were permitted to hold stock in 
the camera and it is of record that the Cardinal of 
Ravenna held 12,000 ducats worth of this stock and 
the Duchess of Milan 100,000 ducats. 

Doge Tomaso Mocenigo declared in a speech de- 
livered in 1423 that the Venetian exports, which cov- 
ered the "whole world from east to west," amounted 
annually to 10,000,000 ducats, with imports at about 
the same sum. The profits on this he calculated at 
about 4,000,000 ducats, or twenty per cent. As most 
of this trade was financed by the bankers it is ob- 
vious how extended their operations were. 

In 1428 the Venetian script outstanding amounted 
to 9,000,000 gold ducats. In 1482 all the old debts 
were consolidated in the Monte Vecchio and a new 
loan of five per cent was placed against special taxes. 
Various bankruptcies among private bankers in 1502 
led to the establishment of a Supervisor of Banks, 
who had the power to examine the solvency of any 
firm. In 1525 the city, in order to raise money, be- 
gan to offer annuities in return for deposits in the 
mint or, if the depositor preferred he could have per- 
petual interest at a lower rate. 

[60] 





ONE OF THE FIRST VENETIAN 
COINS, NINTH CENTURY 



BANKERS OF VENETIAN FLEETS 

By a decree of the Senate the first official state 
bank of Venice was established in 1587. A second 
institution, the Banco del Giro, known as the Bank 
of Venice, was founded in 1618, based on a loan of 
600,000 ducats advanced to the city by Giovanna 
Vendarmin. 

Both of these banks were without capital and 
functioned merely as depositories under the manage- 
ment of public officials. They received funds from 
the state and individuals, charging the latter a stipu- 
lated rate. On order of depositors transfers were 
made on their books and bills of exchange were paid 
by similar transfer. It was Venetian law that the 
tender of such a bank credit for more than a hun- 
dred ducats could not be refused. It was a basic 
principle of these banks that their cash or bullion on 
hand should equal their receipts but, as they were 
compelled to make loans to the government, they 
were forced to suspend payment more than once. 

Nevertheless the bank prospered when the de- 
mands on it were not too heavy. In 1754 interest 
was temporarily reduced to three and one-half per 
cent, but in 1766 it was restored to four per cent with 
a promise to pay depositors on demand. 

But all this later bank development constituted 
mere vestigial remains of financial over-lordship. 
Venice had long since lost her power and with it 
much of her affluence. When the Portuguese began 

[61] 



BANKING THROUGH THE AGES 

to sail round the Cape of Good Hope the Mediter- 
ranean ceased to be the sole highway to the East. 
Even before this, exhausting though victorious wars 
with Genoa, and equally exhausting and losing wars 
with the Turks had sapped the strength of the state. 
Yet Venice remained a free city until Napoleon 
brought the first victorious enemy within its water 
gates. 

The French even burned the famous "Golden 
Book" in which were entered the names of the great 
patrician merchants, the hereditary princes of trade 
and finance. Since then Venice has possessed only a 
past. 



[62] 




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CHAPTER VI 

RENAISSANCE OF BANKING AND 
THE BANK OF ST. GEORGE 

FINANCE — what we understand to-day as the 
power of money and credit — collapsed in Eu- 
rope with the fall of the Roman Empire. 
All through the Dark Ages, banking, save as it func- 
tioned clumsily through the unskilled hands of feudal 
bursars, lay under an eclipse. 

But along with that extraordinary reflowering of 
civilization which we call the Italian Renaissance it 
came to life once more. Indeed, so vigorous was the 
new commercial growth that in a number of the more 
splendid Italian civic republics it threatened to swal- 
low the state itself. 

Before Columbus opened the highways of the 
western ocean the Mediterranean, of course, was the 
great avenue of freighted ships. The cities of the 
Italian peninsula, which seemed to reach down like a 
sickle to reap the sea-borne harvest, naturally became 
thriving centres of this maritime trade. Banking, 
which early developed as a necessary adjunct of their 
water traffic, became a passion, then an art, and fi- 
nally almost a form of government. 

[63] 



BANKING THROUGH THE AGES 

Venice, Florence and Genoa were the chief bene- 
ficiaries of this commercial revival and the repositories 
of the accruing wealth. The business methods of 
all three showed a general similarity, but each devel- 
oped a characteristic phase of banking. In Flor- 
ence, for example, banking fell largely into the hands 
of great private families. In Genoa, perhaps, bank- 
ing most nearly approached a public function through 
the famous Bank of St. George. 

The Bank of St. George, which eventually ruled 
a whole broad territory along the north-western 
Italian littoral, was at once one of the oldest and 
longest lived of the institutions sprung from mediae- 
val finance. So firmly was it founded, so sagaciously 
directed and so tenaciously jealous of its privileges 
that it was able to function continuously through 
seven centuries. In fact, it may be studied as the 
epitome of that system which enabled these tiny 
Italian republics, politically so weak they could never 
successfully defend their own borders, to finance the 
wars of emperors and develop within themselves a 
standard of culture unmatched by any contemporary 
court of Europe. 

The name of the bank itself suggests its mediaeval 
origin at a time when all human enterprises, even 
those on which the Church looked somewhat coldly, 
must have a patron saint. Saint George was that 
gallant Roman military tribune in Cappadocia who 

[64] 



RENAISSANCE OF BANKING 

became a Christian and for his faith was put to 
death by the Emperor Diocletian in 303 a. d. His 
spirit, invoked by the Genoese bankers, is the same 
ghostly presence which marches ahead of the armies 
of England and Portugal and is supposed to have 
swung a doughty blade with the Crusaders against 
the Turk. In 1101 the fleets of both Genoa and 
Venice had played a prominent part in reinforcing 
the First Crusade. In 1147 came the Second 
Crusade, with the spirit of St. George still leading. 

It was only a year later when the initial step in the 
organization of the bank was undertaken and Genoa 
contracted her first formal loan. The money was 
borrowed on future custom duties and the creditors 
formed a council to protect their interests. Each 
hundred lire of the debt was called a luogo, or share. 
Any number of shares issued to an individual com- 
prised a column, as they were entered in a book called 
the cortulario. New loans were separately kept. 
Each was called a compera and together they were 
known as the "Compere of St. George." 

Within the next hundred years loans became 
numerous and their management correspondingly 
complicated. In 1252, therefore, they were placed 
under the control of a single corporate body with a 
chancellor and various other officials. Each loan, as 
before, was kept separately, with different security 
and interest. The name "Compere of St. George" 

[65] 



BANKING THROUGH THE AGES 

was officially adopted so that the date, 1252, is often 
cited as that of the founding of the bank. 

Genoa continued to prosper and expand. Loans 
multiplied right and left. In 1302 it was necessary 
to call a great assembly which appointed commis- 
sioners to draw up 271 articles for the control of the 
compere. One of these stipulations was that the 
city was thereafter to contract no loan without the 
sanction of the consuls of the compere. 

The Bank of St. George operated essentially as a 
loan bank and in this respect offered a complete con- 
trast to the Bank of Amsterdam. Sometimes the 
loans were made on curious security. In 1336 Car- 
dinal Fieschi received a loan on the sacred parossidis, 
or holy basin. Although the Catholic Church through 
the Middle Ages officially frowned on bankers and 
held interest in any form to be mere usury, this little 
business arrangement with the Cardinal indicates the 
beginning of a certain latitudinarianism. In the 
15th century the Popes Calixtus III and Sixtus 
IV formally granted permission to hold shares in 
the bank. These were a profitable investment, for 
the bank, in return for loans, received the pledge 
of the city for its future taxes, or in the case of in- 
dividuals, the profits of business enterprises. Jewels, 
also, were a customary form of security. 

Like all the Italian mercantile republics Genoa 
was turbulent. During the revolution of 1339 all 

[66] 




GENOESE BANKERS IN CONFERENCE LATE 

FOURTEENTH CENTURY 



RENAISSANCE OF BANKING 

the old books of the bank were burned and new com- 
missioners appointed to regulate the compere. The 
city treasury was completely exhausted by building 
and outfitting twenty-six galleys required in one of 
the innumerable naval wars and was forced to cede 
the loot of conquest to the compere. 

By 1371 more wars and constant internal conflict 
had utterly destroyed the credit of the city. Fran- 
cesco Vivaldi, an old patrician, rose before the as- 
sembly, and, after explaining the principle of com- 
pound interest, gave his shares in trust to the consuls 
of the compere to use the interest on them in buying 
other shares and the interest on these, in turn, to buy 
still others. This gift, accumulating as it was bound 
to, is said to have saved the credit of the state. 
Vivaldi having shown the way, similar trusts were 
formed for the maintenance of churches, bridges, 
fountains and other public improvements. 

It was in 1407 that the bank evolved fully into a 
great public institution. The republic had borrowed 
huge sums and had assigned various revenues as se- 
curity. To avoid confusion, all the shares were 
united in the compere, or, as it now became known, 
the Bank of St. George. 

The management was placed in the hands of eight 
protectors, who were elected annually by the share- 
holders from a list of thirty-two chosen by lot. 
Each protector (or director) was obliged to hold 

[67] 



BANKING THROUGH THE AGES 

shares amounting to 1,000 Genoese florins. This 
directorate of eight filled the offices of president, 
treasure general, superintendent for the sale of 
shares, three judges and two secretaries. The gen- 
eral council consisted of 480 members, elected by 
ballot, and qualified by the ownership of at least ten 
shares. It is a striking testimony to the breadth of 
Genoese business practice that even foreigners were 
eligible. 

The assumption by the bank of state affairs is il- 
lustrated in a remarkable floating debt voted by the 
directors in 1456. As a result of the war against the 
Turks it was necessary to delay the payment of 
certain loans for three years. These were listed 
separately as entered debts to be repaid three years 
after each matured. By this time the bank had 
gradually become an independent government within 
a government. When Mohammed II and his Otto- 
man army captured Constantinople in 1453 Genoa 
ceded its Black Sea possessions to the bank. At one 
time, also, Corsica, Cyprus, and the towns along the 
Riviera were under the direct government of the 
bank. Its directorate did not deign to acknowledge 
allegiance to the city even by so much as flying the 
red cross of Genoa but proudly unfurled the ban- 
ner of St. George. 

Machiavelli, from his neighbouring retreat at San 
Casciano, noted the growing power and independence 

[68] 




ANCIENT EGYPTIAN BRACELETS USED AS MONEY 



RENAISSANCE OF BANKING 

of the bank. Such a successful oligarchy fitted in 
well with his subtle system of government. In his 
History of Florence he remarked: "If it should 
happen that Genoa should fall entirely into the pos- 
session of the Bank of St. George, it will then be- 
come a republic of greater importance than even that 
of Venice." 

This tendency of the bank to arrogate state powers 
to itself had been anxiously observed within the city. 
In 1528 an effort was made to curb it by a law pro- 
viding that anyone who held an appointment under 
the government could not hold one under the bank. 
But as a result of the famine of 1550 the government 
was forced into a new and supine policy which held 
the possibility of complete absorption within the bank. 
In return for a heavy loan it agreed to turn over cer- 
tain taxes, not merely for a limited period, but in per- 
petuity. In a word, it sold the people's tax power 
for the loan. 

Throughout this period of growing power the bank 
had continued to sell shares in different loans, even by 
auction on the street corners — a scheme which sug- 
gests a resemblance to the New York curb market. 
In 1675, however, the bank ceased these street sales 
and established four branches in the city. Thence- 
forth the term compere went out of usage and the 
institution was known exclusively as a bank. 

The credit of the organization remained unim- 

[69] 



BANKING THROUGH THE AGES 

paired until its gold reserve was carried off by the 
Austrian army in 1740. Even then the interest due 
was carried as new loans and eventually repaid. 
But the death Stroke came in 1800, during the French 
Revolution. The revolutionaries deprived the bank 
of its dearest privilege, the right to receive taxes 
which had been pledged as security for loans. This 
was its chief source of income. Shortly after the 
passage of this fatal decree the Bank of St. George, 
which dated its beginning from 1148 and had, at the 
height of its influence, exercised all the functions of 
a principality, closed its doors for ever. 



[70] 




LORENZO THE MAGNIFICENT, PINNACLE OF THE 
FAMOUS FAMILY OF THE MEDICI 



CHAPTER VII 

THE FLORENTINE GUILD AND THE 
BANK OF THE MEDICI 

IN 1252 the bankers of Florence, acting through 
an already well organized guild, issued the first 
gold florin. It was a handsome coin, displaying 
on the obverse a lily and on the reverse an effigy of 
John the Baptist. But more important than that, 
it was an honest coin and instantly rang true among 
the various and somewhat dubious currency on which 
the world then depended. In other cities of Italy, in 
France, Spain and even Germany, the florin rapidly 
became a standard of value because it was depend- 
able in weight and pure in quality. 

In 1492 died Lorenzo, the Magnificent, pinnacle 
of the famous family of the Medici. Florence, rich- 
est of the renaissance cities, was richest of all, per- 
haps, in great names — Giotto, Michel Angelo, 
Andrea Pisano, della Robbia, Leonardo da Vinci, 
Machiavelli, Vasari, Boccaccio, Tasso, Galileo. But 
all the dazzling qualities of the city seemed to flower 
in the illustrious name of Lorenzo, banker and 
Maecenas. 

[71] 



BANKING THROUGH THE AGES 

Between these two dates, each typical of a period, 
Florence became not only the wonder city of Italy, 
but the financial, artistic and intellectual capital of 
Europe. Only Athens in the age of Pericles can 
be compared to Florence in the time of Lorenzo. 
And as for the eminence of the Medici in finance, 
nothing quite like it had been heard of in the world 
before. But curiously enough, Lorenzo died in the 
very year of a discovery that was inevitably to shift 
the tide of progress westward and change Florence 
from a world capital once more into a provincial 
centre. 

The Medici, like most of the great families of the 
city, were bankers and members of the bankers guild, 
which had produced other financiers of continental 
calibre in the Bardi and the Peruzzi, while the Medici 
were still struggling for a commercial and political 
foothold. The bankers, fourth of the seven great 
guilds, which through their representatives largely 
controlled the city, was as exclusive as it was inclu- 
sive. No man, no matter what his connections, could 
bank in Florence unless he was a member and had 
served an apprenticeship with the guild. 

The bankers guild was a very ancient and honour- 
able society. As far back as 1204 the consuls of the 
guild of bankers and money changers appear, along 
with the consuls of the other guilds, as signatories to 
the treaty with Sienna. Records of this interesting 

[72] 




COAT OF ARMS OF THE MEDICI 

Today the only survival of the famous 
Bank of the Medici is the familiar sign 
of the three golden balls displayed above 
pawnbroking establishments, an adapta- 
tion from the six red balls on the gold 
field of the Medici shield and the guild 
shield with its red field strewn with 
eleven gold florins. 



THE FLORENTINE GUILD 

organization are still extant. They reveal in detail 
the mediaeval formula for creating a banker. 

If a boy wished to enter the guild he first signed 
the matriculation roll and then submitted to an ex- 
amination before the consuls. The aptness and 
capacity of the candidate were, of course, taken into 
consideration, but five qualifications were regarded as 
absolutely essential. It was required of him to be a 
native of the city, to have two sponsors, never to have 
been arrested, to be himself a property owner (or heir 
to property) and to have paid the state tax. If he 
was accepted an entrance fee was exacted, which 
varied from time to time but was always compara- 
tively high. 

The fledgling banker remained an apprentice for 
from five to seven years. During this probationary 
period his wages were never more than ten lire a 
year, but his board and lodging were found for him. 
If he proved a satisfactory apprentice he was ad- 
vanced to a clerkship in which he was supposed to 
acquire additional knowledge for another three years 
before he was permitted to set up in business for him- 
self. 

Members of the guild had the exclusive right to 
favoured locations in the market, such as those in the 
Mercato Nuovo or along the Via di Tavolini. The 
outfit of the guild money changer and lender was a 
simple one — a chair and table for his convenience and 

[73] 



BANKING THROUGH THE AGES 

a green table cloth as the official and protected in- 
signia of his trade. A daybook of ordinary paper, a 
few sheets of parchment and a balance for weighing 
coins completed his office paraphernalia. 

His stock of gold coin he carried in a pouch fast- 
ened to his girdle. Silver for small change was kept 
in a bowl on the table. It was customary, certainly 
in the earlier days of the guild, to test both gold and 
silver by weight, though the florin, worth about $2.40, 
was presumed to be standard. 

Under the rules of the guild members were com- 
pelled to keep books which were open to the inspec- 
tion of its officers. It was also required that these 
accounts be kept legibly in Roman figures without 
capitals or special punctuation. The new-fangled 
Arabic notation, lately introduced from Spain, was 
not acceptable. 

Up to the time of the Medici books were kept on 
the single entry system, but there were duplicate sets 
and the daybooks were copied into master ledgers. 
These were stoutly constructed with leaves of parch- 
ment and clamped and locked bindings. Such master 
ledgers, of course, were retained at the offices of the 
guild. A general balance was struck once a year 
and at the same time the value of coins and rates of 
interest were officially fixed. 

Interest was very high and, according to our stand- 
ards, simply crushing to the debtor. The disap- 

[74] 



THE FLORENTINE GUILD 

proval of the church seemed to make little difference. 
In 1427, for example, according to the ledger of 
Bardi and Piccioli, the interest on 2,928 lire was 878 
lire, or almost 30 per cent. Apparently the legal 
rate was based on what the traffic would bear. But 
the guild itself seemed to be conscious of the exor- 
bitance of these exactions, for three years later it 
forbade its members to charge more than four denari 
a month. As this rate, however, amounted to 20 per 
cent a month, the bankers still remained fairly well 
protected. 

Many of the terms of the Florentine bankers have 
come down to us and form a substantial part of our 
own financial glossary, — cassa, for instance, as cash; 
banco as bank; giornale as journal; debitor e as 
debtor; and creditor e as creditor. 

The headquarters of the guild long stood in the 
Mercato Nuovo. This splendid building was a 
monument to the prosperity and culture of the city. 
Its ceilings glowed with many-coloured murals by the 
most distinguished Florentine artists and its walls 
were hung with rich tapestries and pictures in the 
then newly discovered oil paints as a background for 
exquisite Florentine sculpture and the marvellously 
wrought furnishings of the period. The opening and 
the closing of the city's business day hung upon the 
toll of the great bell in the bankers guild. 

It was inevitable that a system so well organized 

[75] 



BANKING THROUGH THE AGES 

and perfected should develop international banking 
on a large scale. As early as 1260 the guild had be- 
gun to issue letters of credit through the individual 
bankers and funds were sometimes sent as far away 
as Jaffa, or Tana, on the Sea of Azov. 

There were two great eras of international bank- 
ing in Florence. The first centred around the Bardi 
and Peruzzi who were, in their time, the supreme 
financiers of mediaeval Europe. In the 14th century 
the Bardi established agencies as far north as Eng- 
land and Germany and as far east as Rhodes, while 
the 130 agencies of the Peruzzi extended from Lon- 
don to Constantinople. 

Both houses advanced huge sums to Edward II 
and III of England, and to the King of Sicily, and 
both were thrown into bankruptcy when the English 
King and Parliament refused to repay £700,000 and 
the King of Sicily defaulted at about the same time. 

It was not until the rise of the Medici that Flor- 
ence recovered from this blow. Banking had been 
the profession of the Medici for a long time but the 
first of the family to attain pre-eminence was Gio- 
vanni de Medici. Giovanni was born in 1360 and as 
a young man went through the regularly prescribed 
steps of an apprentice in the bankers guild. 

As Giovanni rose to wealth and power he left his 
green-covered table in the market place and built 

[76] 




LOGGIA DEL MERCATO NUOVO 

Built by G. B. del Tasso, 1547, especially for the money changers 

and used by the bankers in the days of the Medici. 



THE FLORENTINE GUILD 

himself a palace in the hall of which his main business 
was conducted, though he had branch banks in a 
number of Italian cities. These bankers' mansions 
were a feature of Florence and gave the names to 
many of the principal streets such as the Peruzzi, 
Tornabucai, Albizzi, Greci, Bardi and Cerchi. 

Perhaps Giovanni's most successful venture was 
during the council of Constance, from 1414 to 1418, 
when he cleared a fortune. In 1429 his estate was 
reckoned at 180,000 gold florins, or $450,000 which at 
that time had an enormous purchasing power. As 
Machiavelli phrases it: "He died exceedingly rich 
in money, but still more in good fame and the best 
wishes of mankind ; and the wealth and respect he left 
behind him were not only preserved but increased by 
his son Cosmo." 

Cosmo remained a banker, conserving and develop- 
ing his patrimony into another great fortune. But 
he enjoyed an even wider success in politics and be- 
came, in effect, the dictator of Florence, though he 
made a pretence of ruling through the old republican 
forms. In 1449 Cosmo's son Lorenzo was born and 
lived to earn the title of "the Magnificent." 

Lorenzo lived in princely style and his lavish pat- 
ronage of the arts attracted about him most of the 
great figures of his time into a veritable court of 
talent. He was a man of no mean talent himself and 

[77] 



BANKING THROUGH THE AGES 

wrote vivacious prose as well as excellent poetry. 
Indeed, he was not above singing carnival songs of 
his own composition in the public streets and these 
were not less appreciated because they were often 
indecent. 

But though Lorenzo busied himself less about his 
business than his father and grandfather had done, 
the reputation of the banking house of the Medici 
continued to mount so high that it was recognized all 
over Europe. The standing of the Medici may be 
gauged from the fact that when Edward of England 
invaded France in 1475 and was bought off by Louis 
XI on the promise of 50,000 crowns a year for a 
hundred years, it was stipulated that the Bank of the 
Medici should be made surety for the continued pay- 
ment of the indemnity. In other words, Louis XI 
was to establish a trust fund with them for the period 
of a century. Other events prevented the fulfilment 
of this agreement but it illustrates the enormous pres- 
tige of the Florentine Magnifico. 

After Lorenzo another branch of the family car- 
ried the name to further fame and into the papacy 
itself, but it was not essentially as financiers that they 
prospered. Two centuries after Lorenzo's death the 
family had withdrawn from all direct connection with 
banking. 

To-day the only survival of the famous Bank of the 
Medici is the familiar sign of the three golden balls 

[78] 



THE FLORENTINE GUILD 

displayed above pawnbroking establishments, an 
adaptation from the six red balls on the gold field of 
the Medici shield and the guild shield with its red 
field strewn with eleven gold florins. 



[79] 



B 



44 1C5 ^ doing good with his money, a man as it 
were stamps the image of God upon it, and 
makes -both pass current in the merchandise of 
Heaven." 

Rev. E. Rutlkdge. 



CHAPTER VIII 

FINANCES OF BARCELONA 

IF one wished to be fanciful he might say that the 
Gods had assured Barcelona of a fortunate fu- 
ture. For there is a tradition that Hercules 
founded the city four hundred years before Romulus 
had thought of building Rome. 

However that may be, the origin of Barcelona is 
ancient enough. It seems to have been established 
during the Carthaginian supremacy in Spain by 
Hamilcar Barca, father of Hannibal, who was to 
come nearer the conquest of Rome than any of the 
ancients. The city at that time was called Barcina, 
after its founder, and so derives its present name 
which was officially confirmed when the Bishopric of 
Barcelona was created in 343 a. d. 

After the Roman power was withdrawn from Fa- 
ventia, as the city was known for a time, it underwent 
a number of vicissitudes and fell before the Moorish 
invasion in 713. It was probably shortly after this 
that the Jews who later played an important part in 
the economic life of the town, became prominent. 
The Christians, aided by Charlemagne, recaptured 
Barcelona in 788. Thenceforth, until the union of 

[81] 



BANKING THROUGH THE AGES 

Catalonia with Aragon in 1149, it was nominally 
ruled by the counts of Catalonia, who claimed to be 
independent. 

Through all this time the superb situation of Bar- 
celona had constantly tended to make it an impor- 
tant city and eventually it became supreme on the 
eastern coast of Spain. As early as 1227 the Bar- 
celonian fleet was so numerous that it was decreed 
these ships should monopolize the trade with Egypt 
and Barbary. 

Most important among the industries of the city 
was woollen manufacture. This must have been or- 
ganized before 1257 because there is a record that 
the wool dyers had a guild at that date. In 1258 the 
great municipal council numbered one hundred and 
fourteen representatives of the various trades. 
Among them were six cloth merchants, nine wool 
dealers, and four cotton spinners. And to show that 
banking, even at that time, was looked on as an es- 
sential vocation, there were four money changers. 

Barcelona lies at the foot of Mount Monjuich. 
In Roman times this elevation was known as the 
Mount of Jove but in the Middle Ages it was called 
Mons Judacius and seems to have been set aside en- 
tirely as a Jewish quarter. Therefore, it is quite 
natural to find a Jew as the first famous financier of 
Barcelona. 

This was Benveniste de Porta, a man of wide rep- 

[82] 




SETTLEMENT OF ACCOUNTS BY MEDIEVAL GUILD 1466 



FINANCES OF BARCELONA 

utation in his day. In 1257 he had become a backer 
of royalty, for the records show that on December 
seventeenth of that year he advanced 3,863 sueldos 
to King James I of Aragon. The loan was secured 
and was to be collected from the dues of his bailiwick. 

Repeatedly during the next few years he acted as 
the King's financier. In January, 1258, for ex- 
ample, he received the right to dispose of the taxes 
of Barcelona and Gerona for two years. Again, in 
return for a loan of 200,000 sueldos to the King, he 
was authorized to collect the revenues of Lerida and 
other places. On June 12, 1260, King James drew 
a draft against him for 5,000 sueldos, which is one of 
the earliest references to such a commercial paper. 

In 1262 Benveniste advanced 15,221 sueldos to 
the account of the Infanta Donna Juana and re- 
ceived in return the dues of Villafranca and twenty 
squares of land. This land grant is of peculiar in- 
terest and significance as in most places throughout 
Christendom the Jews were forbidden to hold land. 
King James, however, was a liberal minded ruler, 
and to prove it once listened to a debate between a 
Christian, a Mohammedan and a Jew. 

Benveniste seems to have financed most of the op- 
erations in Barcelona at this time. In 1264 he 
loaned 15,000 sueldos to the Bishop of Barcelona, 
indicating that religious intolerance was rampant on 
neither side. Four years later he was again granted 

[83] 



BANKING THROUGH THE AGES 

the right to collect the dues of Gerona. All this time 
the King seems to have regarded him with the most 
friendly spirit. As a token of his favour James even 
went so far as to pardon Benveniste's brother for de- 
faming the Christians. 

The sheep raisers formed a guild in 1273 which 
continued an economic factor in the life of the city 
for hundreds of years. The next year, however, 
commerce was threatened when trade with the Mo- 
hammedans was forbidden. But Barcelona was too 
near Moslem territory for such a suppression to be 
entirely effective. About this time, churchly influ- 
ence also brought about a limit of twenty per cent 
on interest, which still further turned the money lend- 
ing business into the hands of the Jews. 

During the reign of Pedro III, from 1276 to 1285, 
Sicily was conquered. This put Aragon into close 
touch with Italy, as well as Sicily, resulting in the 
spread of Italian influence into Barcelona itself. 
During this period the merchants of Barcelona com- 
peted with Italy for the trade of the Levant and 
were among the earliest to establish consuls and fac- 
tories in distant ports. The celebrated code of mar- 
itime law, Consolato del Mar, is believed to have been 
drawn up at Barcelona. The extension of commerce 
developed the issue of marine insurance at an early 
date. 

Sicily was an island of mixed population and har- 

[84] 




MEDIEVAL COINAGE OF BARCELONA. SOME OF THESE 
COINS WERE ISSUED BY JAMES I OF ARAGON 



FINANCES OF BARCELONA 

bored Greeks and Mohammedans as well as Italians. 
Sericulture had long been introduced there and after 
Pedro's conquest silk manufacture spread to Aragon 
and other Spanish provinces. But wool remained 
the great staple of manufacture. By that time the 
woollen guild was importing wool from England and 
sending back shipments of finished cloth not only to 
Britain but also to many other countries. Thus the 
guild was forced into banking operations for its mem- 
bers as early as 1349. An agent in England could 
pay a bill there with a draft drawn on the guild, while 
the guild paper was generally accepted in the cities of 
Spain and Italy. 

In importing wool from England the guild acted 
as buyer for its various members and in disposing of 
goods abroad exercised a similar general sales func- 
tion. Members could also borrow from the guild 
when necessary. They were not expected to pay 
interest but were required to give pledges unless 
the loan was so small that their ability to repay was 
unquestioned. 

Throughout western Europe there were riots 
against the Jews toward the end of the Fourteenth 
Century. Superstitious charges that the Jews had 
introduced the Black Death, or pestilence, which 
again and again ravaged the most populous commu- 
nities, were at the bottom of these uprisings. In one 
such riot at Barcelona, in 1391, the Jewish quarter 

[85] 



BANKING THROUGH THE AGES 

was virtually wiped out and many Jewish money 
lenders were driven from the city. 

This left a void which the thriving commerce of 
the city compelled the citizens to fill. Acting on the 
example of the drapers' guild and of some of the 
Italian cities, the municipality thereupon established 
the Bank of Barcelona as an official institution. 

This bank received deposits and served as a me- 
dium of exchange, issuing drafts and accepting 
drafts drawn upon it. Unlike the drapers' guild it 
was open to every one, including not merely the cit- 
izens of Barcelona and Aragon, but all foreigners as 
well. Foreigners were no doubt admitted to help 
solve the problem of exchange of money which had 
become almost inextricably complex. Barcelona 
maintained commercial relations with Aragon, Cas- 
tile, France, Mohammedan Spain, Sicily and various 
cities in Italy and all of these issued distinctive coin- 
ages of their own. 

Barcelona always remained proud of her position 
as a commercial city and fostered her trade and 
manufacture in every way. Business there was 
never regarded as degrading as it was in many other 
Spanish cities. The municipality was controlled by 
the council which was itself composed of representa- 
tives of the guilds, as in Florence. Indeed instances 
are recorded of some of the lesser nobles renouncing 
their rank for the privilege of entering a guild and 

[86] 



FINANCES OF BARCELONA 

thus establishing their eligibility for municipal offices. 

The bank was under the general supervision of the 
council and so, indirectly, under the control of the 
guild members whose interests it served. As a result 
of this close business relationship the bank enjoyed 
a long and prosperous career. 

The discovery of America, which changed the 
course of commerce throughout the world, affected 
Barcelona adversely along with the other Mediter- 
ranean cities. The cities of the Atlantic coast leaped 
into sudden importance and Barcelona, though it re- 
mains an important industrial centre to this day, 
never recovered the prestige it enjoyed before Co- 
lumbus ventured across the western ocean. 



[87] 



M' 



"TV >(r ONEY > the life blood of the nation, 

Corrupts and stagnates in its veins, 
Unless a proper circulation 

Its motion and its heat maintains." 

Dean Swift. 



CHAPTER IX 

BIRTH OF THE ENGLISH NATIONAL 

DEBT AND FOUNDING OF THE 

BANK OF ENGLAND 

THE banker of to-day should find it a curious 
and interesting diversion to consider how 
much he owes to the tyrants of the past. It 
is a commonplace, in all nations derived from English 
stock, that existing political and legal institutions 
represent mainly the outgrowth of the struggle of 
popular rights against the absolutism of kings. To 
an extent this is also true of banking and currency, as, 
for instance, the issuance of bank-notes backed by the 
national governments. 

It may fairly be said that such standard features 
of the modern banking world as the central bank of 
issue and the national debt come to Americans almost 
as the direct fruit of the Divine Right of Kings, as 
this right was perversely applied by two Stuart kings 
of England, Charles I and Charles II. It was due 
primarily to the lawlessness and corruption of the 
second of these kings that England created a national 
debt and a central bank of issue. 

The astonishing crudity of the devices which served 

[89] 



BANKING THROUGH THE AGES 

England in place of a banking system in the Middle 
Ages — almost incredible to the modern mind — made 
possible the forays of the Stuart kings ; and by mak- 
ing these raids possible drove home the necessity of 
regulating the financial relations between the Gov- 
ernment and the people to whom the Government 
looked for funds with which to carry on. 

Charles I set two unfortunate precedents for his 
immediate successor by twice losing his head. The 
second loss, as is well known, was fatal to Charles. 
The first was when he raided the Exchequer or Gov- 
ernment Treasury (then housed in the Tower of 
London), causing a loss to the merchants who had 
deposited their money there to the amount of £120,- 
000. This was the precedent which the second 
Charles followed, on a ten times larger scale, with 
results probably much more than ten times as far- 
reaching. 

In the careless days of Charles I the methods 
both of banking and of taxation were crude and 
confused. For nearly five hundred years before his 
time the Mint had been a place of deposit for the 
merchants. Because of the worn condition of the 
coins, which made them of unequal value, the officials 
weighed each man's deposit and recorded the amount 
of the deposit by notches on a stick, which afterwards 
served as ledger and pass-book. According to Sir 
John Lubbock, president of the Bankers' Institute 

[90] 




o 

° £ 
« o 

K 
H 

W 

w 

Hi 

P 

P 



BIRTH OF ENGLISH NATIONAL DEBT 

of London in 1879, it was not until 1826 that the old 
wooden tallies entirely passed out of use in England. 
"The tally," says Sir John, "was a willow stick about 
five feet long, an inch in depth and thickness, with 
the four sides roughly squared." 

The amount of the deposit was recorded by means 
of notches on one side of the tally stick, and a descrip- 
tion inscribed on the two sides adjoining the notched 
side. The tally stick was then split in half through 
the notches, one half going to the depositor, the other 
half being retained by the bank as its record. 

Cromwell, who sanctioned the beheading of Charles 
I, and who ruled England as "Protector," had a 
hand in devising the effective and productive system 
of monthly taxes which enabled the Parliamentary 
Government to get through periods of great difficulty. 
This new system was largely continued under the 
second Charles. 

But Cromwell, like the king before him, had to 
take in his pocket Parliament's authorization for a 
loan and dicker with the money lenders when in need 
of funds, the security offered being repayment out of 
the proceeds of the authorized tax-levy. By this time 
the former money-lending supremacy of the Jews 
had passed to the goldsmiths who came to England 
from Lombardy, and who have left their own monu- 
ment in modern London in the name of Lombard 
Street — the Wall Street of the British capital. 

[91] 



BANKING THROUGH THE AGES 

Following the raid of Charles I on the Exchequer, 
the confidence of the merchants in government de- 
positories began to weaken and they gradually turned 
to the goldsmiths' strong boxes for a safer depository 
for their funds. On short time deposits, the gold- 
smiths levied a small charge for the accommodation; 
but they paid as high as six per cent interest on de- 
posits placed with them definitely for a year or more. 

The charge they made for loans to the Government 
was generally eight per cent, leaving for themselves, 
as bankers, a profit of two per cent. 

In January, 1672, when the Mint contained some 
.£1,328,000 of bankers' funds advanced to the Gov- 
ernment, Charles II acted on the precedent set by 
his father. In the pay of the King of France, and 
conspiring against England's safety, he had promised 
by way of repayment to produce a war between Eng- 
land and Holland. Like many another spendthrift 
he ran out of funds and, losing his head almost as com- 
pletely as his father had done, executed his most 
lamentable raid upon the Mint, seized the funds, and 
closed the Exchequer, prohibiting its reopening in 
order to prevent the merchants from cashing their 
tallies. This famous raid has been known in history 
ever since as "The Stop of the Exchequer." 

This seizure proved to be a serious matter for all 
concerned. The money, though advanced by the 
bankers to the Government, represented the fortunes 

[92] 



BIRTH OF ENGLISH NATIONAL DEBT 

of some ten thousand individuals who had entrusted 
their funds to the goldsmiths. The bankruptcy and 
ruin which followed Charles' raid was therefore wide- 
spread, and so disastrous that an attempt was made at 
partial reparation, — an attempt which resulted in the 
birth of the national debt of England. Charles, in 
his proclamation closing the Exchequer, declared that 
the money he had taken would be retained for only a 
year, but this promise, like most he made, was not 
kept. The Government paid six per cent interest on 
the seized funds for six years, from 1677 to 1683, 
after which all interest payments ceased. No interest 
was paid during the following short reign of James 
II, and it was not until another revolution had put 
William of Orange on the British throne that real 
reparation came into sight. 

An attempt by the Government's creditors to get 
restitution by action through the courts at first came 
to nothing since it was ruled that Charles II, and not 
the Government headed by William, had made the 
seizure. Years later the House of Lords upset the 
court decision and partial restitution was made. 

Before the end of the litigation was in sight a plan 
of settlement, based on the creation of a regular Gov- 
ernment debt and a bank of issue, was put before 
Parliament by an obscure Scotchman named William 
Patterson, who was backed in his efforts by a number 
of rich London merchants. Taking advantage of 

[93] 



BANKING THROUGH THE AGES 

the Government's need for money, Patterson, in 
1692, offered a plan whereby the creditors or their 
assignees would forego the interest on £1,340,000 
owed them, and would advance another sum equal to 
their principal if six per cent should be secured by 
act of Parliament, and the bills of the company be 
made legal tender up to the total amount. Parlia- 
ment objected to the legal tender feature and nothing 
was concluded for a year or more. 

The plan was revived, however, by Charles Mon- 
tagu, Lord of the Treasury, who sent for Patterson, 
to whose assistance later came the astute Michael 
Godfrey. A loan to the Government of £2,000,000 
at seven per cent interest was contemplated at this 
meeting, but the low rate of interest seemed so pre- 
posterous to royal ministers accustomed to waste 
nearly half the proceeds of a loan in extravagant com- 
missions, that they turned from Patterson's plan to 
other ways and means. 

Two years later the Patterson-Godfrey plan, re- 
vised, was carried through a scantily attended session 
of Parliament as a rider to the Ways and Means Bill. 
It emerged May 4, 1694, as the charter of "The 
Governor and Company of the Bank of England." 
Under the terms of this charter the company was al- 
lowed to lend the Government £1,200,000, was au- 
thorized to issue notes, deal in bullion, and to make 
advances on merchandise. Because the bill to which 

[94] 




ENGLISH OFFICERS RECEIVING AND WEIGHING COIN 
AT THE EXCHEQUER, A.D. 1130 — 1174 



BIRTH OF ENGLISH NATIONAL DEBT 

the Bank rider was attached levied tunnage duties, 
the Bank itself was long known as "The Tunnage 
Bank." 

Thus England acquired a national debt and a 
central bank of issue — unforeseeable fruits of the 
tyranny of the Stuart kings. 



[95] 



**^"^l ET all you can without hurting your soul, 
^JT your body, or your neighbor. Save all 
you can, cutting off every needless expense. 
Give all you can. Be glad to give, and ready to 
distribute; laying up in store for yourselves a 
good foundation against the time to come, that ye 
may attain eternal life." 

John Wesley. 




CHAPTER X 

THE AMSTERDAM BOURSE IN THE 
SEVENTEENTH CENTURY 

N August 14, 1597 the somewhat sedate 
streets of Amsterdam suddenly began to 
echo to the sound of bells ringing in mad 
excitement. In no time at all a crowd of burghers 
had gathered at the waterfront, overjoyed at the 
spectacle they witnessed there. Four Dutch ships, 
absent more than two years, had returned trium- 
phantly from the Spice Islands of the far-away 
Indies. 

But there was a sober note in the triumph. The 
little fleet, backed largely by the money of the local 
merchants, had set out manned by two hundred and 
fifty men. Only ninety-four of them came back, 
and these after incredible hardships. But they had 
successfully defied the power of Spain which, in clos- 
ing the ports of her then dependency, Portugal, to all 
Dutch traders, had threatened the very existence of 
the mercantile navy of the Netherlands. 

That memorable voyage marked the metamor- 
phosis of the Dutch from European into World 
traders. From various ports of Zeeland and Hoi- 

[97] 



BANKING THROUGH THE AGES 

land eighty vessels sailed the following year to 
America, Africa and India. In 1602 the celebrated 
Dutch East India Company was organized under a 
charter granted by the States-General with a sub- 
scribed capital of 6,000,000 guilders. Within six 
years this company sent out forty-six ships armed for 
war, if necessary, and as thoroughly equipped for 
trade. Holland had begun to take her position as a 
world power. 

Commerce, developing so rapidly, was naturally 
in confusion. Amsterdam, long a city of import- 
ance, had suddenly grown to be a great centre of 
international trade. It was overrun with foreigners. 
Its imports and exports reached staggering figures. 
Indeed, it was the main transfer port between north 
and south. 

The money current in the city flowed in from many 
lands. It was worn with constant use and where it 
had not lost weight from long service it was clipped 
by sharpers. The bulk of it was worth from ten to 
fifteen per cent less than the new coinage from the 
mint. This was one of the potent reasons which led 
to the establishment of the Bank of Amsterdam. It 
was also urgently necessary to ease the payment of 
foreign bills of exchange and most of the merchants 
also desired to avoid the inconvenience of making 
their payments in actual coin. 

Therefore in 1609 the city itself established the 

[98] 




H 

o 

W 
H 

oa 

W 

H 



CO 

P4 

o 

ffl 

< 

M 

H 

Cfl 

W 

W 

H 



THE AMSTERDAM BOURSE 

bank. It belonged to the city, its credit was guarded 
by the city, the cost of management was undertaken 
by the city and if there were any profits they accrued 
to the city. At a glance, this has the look of an ad- 
vanced enterprise in municipal ownership. 

Yet the old Bank of Amsterdam is of peculiar in- 
terest to-day because it was in many ways so primitive 
and because it was based on principles so different 
from those which regulate modern banks. Its de- 
posits, for example, were presumed always to be 
equal to its liabilities. It was not intended as a loan 
bank at all but as a convenience in commercial ex- 
change. 

The institution accepted foreign and domestic coin 
at its actual value by weight and fineness. This was 
credited on the books and the depositor was given 
both a credit slip and a receipt for the coin each of 
which was used independently as commercial paper. 
Gold and silver bullion was received on the same 
basis. Both coin and bullion, however, were credited 
at about five per cent below the mint value. 

The bank exacted an additional charge for the 
storage of bullion if it remained in the vaults more 
than six months. For gold this charge was one half 
of one per cent and for silver one quarter of one per 
cent. It was considered more difficult to test the 
fineness of gold and the risk involved in guarding it 
was held to be greater. If coin was left in the bank 

T991 



BANKING THROUGH THE AGES 

for a period beyond six months the same charge as 
that for silver bullion was required. Obviously, a 
considerable part of the bank's income was derived 
from these charges, though the canny founders had 
not neglected other sources of profit. 

Under the law all monies received and paid, 
amounting to more than 600 guilders, had to be 
cleared through the bank and this limit was later 
reduced to 300 guilders. Bills of exchange, to be 
legal, had likewise to be paid through the bank. 
The law was framed to prevent fraud, to provide 
legal records and to assure safety in the handling of 
funds. 

Perhaps it was merely an incidental consideration 
that the business of the bank would be enormously 
extended. However, for each of these multitudinous 
transactions the institution received not less than two 
stivers, or four cents. If the transfer fell below 300 
guilders the charge was tripled. The results were as 
profitable as a government stamp tax on all commer- 
cial paper. 

Another source of profit lay in the multiplication 
of accounts. Every new depositor was charged ten 
guilders, or four dollars, and every new account 
started by him yielded another three guilders. Each 
deposit was regarded as a separate account and might 
be negotiated from merchant to merchant for many 
years. Under the Dutch system the deposit was the 

[100] 



OEN BAM, V*L» VQCANT. 




THE FORUM, AMSTERDAM EARLY EIGHTEENTH CENTURY 



THE AMSTERDAM BOURSE 

unit whereas to-day the individual is usually regarded 
as the unit. 

Certain specific penalties enforced by the man- 
agement also added to the profit of the bank. 

If bullion was not withdrawn within six months 
after the deposit, or if a new storage charge was not 
paid, it was supposed to revert to the bank. As a 
matter of fact bullion was seldom forfeited and stor- 
age payments on it often ran over long periods. If 
a depositor failed to balance his account every six 
months he was fined twenty-five guilders, or ten dol- 
lars. 

The profits of the bank, though substantial, varied 
enormously from year to year. The exact figures 
were kept secret. But according to old city records 
of income the profits ran anywhere from 25,000 to 
300,000 guilders, and might jump or drop as much 
as 100,000 guilders from one year to the next. 
Nevertheless, this was doing very well as the bank 
was supposed to make no loans to individuals and 
had not that profitable field to exploit. 

The Bank of Amsterdam was under the direction 
of the four ruling burgomasters of the city, who were 
changed each year. Every year just before the bank 
was handed over to the new burgomasters a balance 
was struck and the transfer was attended by solemn 
ceremonies. However, the actual figures were not 
made public. 

[101] 



BANKING THROUGH THE AGES 

In 1672, when Louis XIV captured Utrecht there 
was a run on the bank but it met all demands 
promptly. Some of the coin paid out at that time 
had evidently been lying in the vaults of the bank 
since it had been founded. 

Yet perhaps even then all was not as serene as it 
seemed. Or possibly the following century devel- 
oped a looser management. At all events when the 
French captured Amsterdam in 1795 and seized the 
bank a balance was taken which revealed that the 
deposits were far below what the receipt book called 
for. It developed that money had been loaned to 
Holland, West Friesland, the City of Amsterdam 
and the Dutch East India Company. How these 
loans could have been kept secret from one adminis- 
tration to another, with the four burgomasters 
changed every year, and in the midst of bitter party 
politics, is a mystery. It must be assumed that the 
true condition of the bank was considered a state 
secret outside the realm of internal politics. 

Though the city managed to pay the depositors in 
full before 1802 these revelations had hopelessly 
ruined the credit of the bank and it soon ceased to 
exist. Through other means, however, Amsterdam 
managed to maintain her financial supremacy until 
it passed to London during the Napoleonic wars. 



[102] 




NATHAN ROTHSCHILD 
Founder of the Famous House of The Rothschilds. 



CHAPTER XI 

RISE OF THE ROTHSCHILDS 

LOST in the obscurity of the humble, somewhere 
in the second quarter of the "excellent, indis- 
pensable Eighteenth Century," a Jewish ped- 
lar, Amschel Moses Bauer, decided to settle down at 
Frankfort, Germany. He had hawked his goods 
about at Hanover and countless country fairs and he 
was tired. 

The restlessness that was already in men's minds, 
and was later to set all Europe in flames, had not yet 
ripened. Bauer opened a little shop in the Juden- 
strasse. Over his door, as a sign, he swung a red 
shield. From that house, named from that modest 
shield, sprang the greatest firm of international 
bankers of the next century — until our own day the 
most powerful family of money lenders the world has 
known. 

Bauer had a son, Maier Amschel, the apple of his 
eye. Maier was a smart boy, and studious. His 
father, in a wild flight of ambition, decided to make 
him a rabbi and sent him to the Talmud school at 
Furth. But in 1754, when Maier was only eleven 
years old, Moses Bauer died. The boy had to go to 
work. Eventually he managed to get a clerkship in 

[103] 



BANKING THROUGH THE AGES 

the Oppenheimer bank at Hanover and after a num- 
ber of years became a junior partner. Yet his mind 
turned back to Frankfort. Returning, he set up 
there as a banker in his own right. As a filial gesture 
he bought the little house with the red shield and as- 
sumed the name "red shield" himself — the first of 
the Rothschilds. 

As a boy at Furth, Maier had developed an in- 
terest in ancient coins and medals. As a banker he 
made this interest rather a hobby. This hobby re- 
sulted in a contact which influenced his own fortune 
and that of many others. 

Chief of the local connoisseurs was William, Land- 
grave of Hanau, afterward Elector of Hesse Cassel. 
In 1785 the Landgrave and General Estorff were 
disputing the origin of an old coin when the General 
suggested Rothschild as an expert. 

Arriving on summons, Maier found the two at 
chess. 

"Do you play?" the Landgrave condescended to 
ask. 

"A little," responded Rothschild. "And if I may 
suggest this move your highness will win the game in 
three moves." 

So it turned out. A decidedly tactful suggestion. 
The victorious Landgrave turned to his friend. 
"General," he announced, "This is certainly no fool 
you have brought me!" 

[104] 




COAT OF ARMS OF THE ROTHSCHILDS, 

WHICH INCLUDES THE ORIGINAL 

RED SHIELD IN THE CENTER 



RISE OF THE ROTHSCHILDS 

And he, in his turn, was right. From time to time 
Maier Rothschild bought rare coins for the Land- 
grave and negotiated bills on London. Like his 
predecessors, Rothschild's patron was virtually sell- 
ing soldiers to Great Britain. In 1787, for example, 
he forwarded 12,000 men and received £80,000 for 
their services. Thus he became one of the richest men 
in Europe, often having as much as half a million 
pounds in his vaults at Cassel, besides substantial 
deposits in London and Amsterdam. Naturally, 
this profitable practice made him the enemy of France 
and when Napoleon crossed the Rhine he was com- 
pelled to flee. But he had developed a firm faith in 
the integrity and shrewdness of Rothschild and left 
most of his wealth with him. The latter hid £250,- 
000 in the cellar and sent much more than that to his 
son Nathan, in London. 

This Nathan was not merely the third of Maier's 
five sons. He was the greatest financial genius of 
his generation. He was born in 1777 and when he 
came of age went to England. Manchester attracted 
him because he saw how three profits could be made 
in the cotton trade. There, by supplying both 
materials and dyes and selling the finished product, 
he expanded his capital from £20,000 to £60,000. 

By 1800 he was rich enough to set up as a London 
banker. Through his father he became within a year 
the purchasing agent for the Landgrave. Within 

[105] 



BANKING THROUGH THE AGES 

six years he had attracted considerable attention in 
the financial world by engineering a loan of 10,000,- 

000 thalers to Denmark. Indeed, so important was 
this loan, that Amsterdam never recovered the pres- 
tige in financial affairs which London, through Roths- 
child, had wrested from her. 

Naturally, then, when the Landgrave fled, his 
funds went to Nathan for safe-keeping. Nathan in- 
vested them shrewdly and when the time came to make 
return added five per cent interest. The Landgrave, 
astonished and delighted, became the firm's greatest 
advertiser, shouting praises of the House of Roths- 
child throughout the courts of Europe. 

England was now at death grips with Napoleon. 
Sir Arthur Wellesley, later Duke of Wellington, 
fighting the power of France in the Spanish penin- 
sula, had drawn numerous orders on the treasury 
which it could not pay and which were consequently 
selling at a big discount. Nathan Rothschild had 
always believed in the ultimate defeat of Napoleon. 
Acting on that faith, in 1809 he bought up many of 
these orders and held them as an investment. It was 
Wellington himself who later said: "Rothschild and 

1 owe something of our .success to knowing what is 
doing on the other side of the wall." 

Meanwhile Rothschild learned that the East India 
Company wished to sell 100,000 pounds of gold bul- 
lion. This he bought, confident that it would soon be 

[106] 



RISE OF THE ROTHSCHILDS 

needed by the government. His guess was correct. 
Soon after, the government sent for him and bought 
his gold to send to Wellesley, who was desperately in 
need of cash for his army in Portugal. Rothschild 
himself undertook to deliver it for the sake, as he 
afterward said, of the extra profit. Not only did he 
deliver the gold to Wellesley but he sent it boldly 
through France, the country of the enemy. 

By this time Wellesley's treasury orders had been 
discounted in Portugal and Italy and, in fact, were 
scattered all over the continent. By 1813 Rothschild 
had traced most of these down and purchased them 
for about <£700,000. Of course it was necessary that 
this be done quietly so as not to disturb prices, but 
Rothschild managed the deal without exciting a rip- 
ple. 

When two years later Napoleon returned from 
Elba, England faced another and her greatest crisis. 

If Napoleon triumphed Rothschild was ruined. 
But as usual he was in a strategic position. Adolphe 
Thiers, the French statesman and financier, tells the 
story of what happened. 

Rothschild was at Ghent. In the next house to his 
was Louis XVIII of France, driven into exile by 
Napoleon and now waiting the issue of the field of 
Waterloo. Through his window Rothschild could 
see what was taking place in the hall of the King next 
door. The only news of the battle of Waterloo that 

[107] 



BANKING THROUGH THE AGES 

had yet penetrated to the outside world was that 
Blucher had heen defeated. Yet the watching banker 
saw a messenger from the battlefield enter the King's 
presence and kneel as though to a reigning sovereign. 

This was enough for Rothschild. He felt sure 
Napoleon was defeated. He started post haste for 
London. Reaching Ostend he found a furious storm 
driving across the Channel. Still gambling with f ate, 
he paid a sailor 2,000 francs in advance to land him 
safely in England. In the morning he was able to 
take his place in the London stock exchange. None 
knew what he knew. What tidings the city had from 
Waterloo were bad. Consols were selling at bargain 
prices. Rothschild bought all he could lay his hands 
on. When the nation finally learned of Welling- 
ton's decisive victory the banker's profits amounted 
to £1,000,000. 

Again and again Rothschild profited by his ap- 
preciation of the value of news. He had carrier 
pigeons trained to bring him the latest tidings from 
Europe and used clipper ships to outrun the ordinary 
channels of intelligence of his time. Once he had the 
news, his own extraordinary judgment equipped him 
to meet and best any competitor. 

Rothschild preferred lending money to states 
rather than to individuals. In time he became the 
fiscal agent of virtually every civilized government on 
the globe, with the exception of Spain and the United 

[108] 



RISE OF THE ROTHSCHILDS 

States, from which countries he consistently declined 
all contracts. His house advanced £18,000,000 to 
states at war with Napoleon and about £5,000,000 
to Prussia after peace had been declared. 

All Nathan's four brothers were able bankers and 
the firm functioned throughout Europe. When 
Nathan died in 1836 the family rested at the apex of 
the financial structure of the world. His son Lionel 
was elected to Parliament but firmly refused to take 
his seat until the disabilities against Jews had been 
removed. Honours and titles descended upon the 
House of Rothschild and to this day it has continued 
one of the great financial powers of Europe. But 
always the central office of the firm has been main- 
tained at Frankfort, where it began in the House of 
the Red Shield. 



[109] 



^TTTT OW a man uses money — makes it, saves 
II II it, and spends it — is perhaps one of the 
best tests of practical wisdom. Although money 
ought by no means to be regarded as a chief end 
of man's life, neither is it a trifling matter to be 
held in philosophic contempt, representing as it 
does to so large an extent, the means of physical 
comfort and social well-being." 

S. Smiles. 



CHAPTER XII 

DEVELOPMENT OF BANKING IN 
THE LAND OF THE VIKINGS 

POPULAR misconception of a name and the 
very real tradition of terror they left on the 
coasts of their visitation have combined to 
create a false notion of the Vikings. Literature has 
insisted on regarding them as scions of a wild north- 
ern royalty, corsairs certainly and perhaps savage 
princelings. As a matter of fact they were not Vi- 
kings at all, but merely Vik-ings — "men of the in- 
lets," or fjords. 

As most of the records we have access to were com- 
piled by their Christian and fear-shaken enemies the 
extremely courageous yet pagan Vikings loom in 
history chiefly as the deadly scourge of that first, 
feeble feudalism which was struggling to revive some 
spark of civilization from the ashes of the Roman 
Empire. Issuing from their long boats, those 
dragon ships which were a sign of peril wherever 
their sails rose above the horizon, they did harry Eng- 
land, Ireland, France, Spain and even the coast of 
Italy, leaving waste and destruction where they did 
not actually kill and colonize. 

[Ill] 



BANKING THROUGH THE AGES 

But the Vikings were much more than pirates. 
At the height of their vigour their governance em- 
braced the whole northern top of the world, from 
North America which they discovered and, in some 
sense settled, hundreds of years before Columbus 
was born, to the steppes of Russia where Rurik, a 
Norseman, is the first great historical figure. There 
is reason to believe the Norsemen sailed up the Great 
Lakes in America and penetrated as far as Minnesota. 
In Russia, on the other wing of their far flung ex- 
ploration, Novgorod is merely the Norse name for 
"new fort." 

All this implies a tremendous maritime energy and 
an enormous extension of trade, for with the Norse- 
men trade was a foster sister of the sword. They 
were a congeries of peoples rather than a nation and 
in the early mediaeval world some impulse, the cause 
of which we do not know, inspired them with a cosmic 
restlessness which brought successive eruptions of 
their fleets against the coastwise monasteries of 
France and England and carried them up the Baltic 
and across the North Atlantic. It is said that the 
first idea of galleys came to them from the Romans, 
but the Romans never proved half so venturesome. 

Often making their first approach as traders they 
would return as raiders and finally as conquerors. 
Thus they came again and again to the shores of 
France and, sailing up the Seine, at last besieged 

[112] 



BANKING IN THE LAND OF VIKINGS 

Paris. To shake them off it was necessary to cede 
them the whole province of Neustria which then be- 
came Normandy. These Normans, or Norsemen, 
learned to speak French and within a century con- 
quered England, settled by earlier Norsemen (An- 
gles and Saxons) who had been fighting vigorously, 
but only half successfully, to keep out their Norse 
kindred, the Danes. 

Throughout all this fierce ferment the Norsemen, 
or at least that branch of the race which called them- 
selves Swedes, had maintained the city of Visby, on 
the island of Gottland, as their chief commercial cen- 
tre. Visby, which retains to-day some of the most 
interesting mediaeval remains in Europe, is believed 
to have been one of the most ancient trading centres 
in the world. There are indications that it was a post 
of exchange even in the Stone Age when bronze was 
just being introduced from the valley of the Mediter- 
ranean. Old Arabic and even Chinese coins dug up 
there suggest the almost incredible spread of early 
Norse commerce. 

As the Vikings became Christianized Visby pros- 
pered and developed as a thriving commercial repub- 
lic, sending expeditions eastward into Russia and 
south through Europe. The whole fur trade of the 
north centred in the city and pelts were exchanged 
for the various wares of more luxurious civilizations. 

Russia, first developed by the Norsemen, was a 

[113] 



BANKING THROUGH THE AGES 

great field for their exploitation. But after the con- 
quest of Russia by the Mongols the trade of Visby 
was considerably impaired. It also suffered through 
the rivalry of other Hanseatic towns, which won away 
much of its southern trade. Finally it was raided 
by King Valdemar Atterdag of Denmark in 1361 
and never afterward managed to recover its prestige. 

Even in those early days furs were so much desired 
that enormous prices were paid for them. Never- 
theless silver and gold were scarcely known in the 
north and the currency was copper. In large 
amounts copper was heavy and cumbersome. For 
this reason there developed in Visby a system of 
written orders for the payment of goods which cor- 
responded somewhat to drafts or checks, except that 
they were based on furs rather than on specie. 

As Visby declined Stockholm became the chief 
Swedish commercial centre. Trade there was fos- 
tered by the Hansa towns of Germany, but their 
privileges gradually became so oppressive that they 
were set aside by Gustavus Vasa. Vasa evinced a 
keen interest in the extension of trade and endeav- 
oured to secure business both in Russia and with the 
German cities. 

Charles XI of Sweden divided the communities 
into inland and staple towns. These latter were 
centres for the export of certain staple products, and 

[114] 




COINING OR STAMPING COPPER MONEY IN 
SWEDEN IN MEDIEVAL TIMES 



BANKING IN THE LAND OF VIKINGS 

it might be that a town would export but one staple 
and thus be known particularly for that product. 

Gustavus Adolphus, that great commander, found 
time between his campaigns to encourage commerce 
and business and is reported to have said: "The 
Kingdom's welfare depends on commerce and ship- 
ping." 

The first chartered public bank in Sweden was 
founded in 1656. An excellent account of this is 
given in the report to Lord Chancellor Hardwicke 
which has never been published but is treasured in 
manuscript by the New York Public Library. 

Sole rights for the institution were given to John 
Palmstruch, head of the merchants guild and a prom- 
inent miner. The only capital required was what- 
ever cash Palmstruch might have had and the credit of 
his various mines. The bank was divided into two de- 
partments, — the deposit branch which could make no 
loans, and the loan department which was permitted 
to lend money on real estate and commodities. 
Within two years the bank was issuing notes payable 
on demand, some to order and some to bearer. 
These were probably the first standard-sized payable- 
on-demand bank bills ever issued. 

The loans of the Palmstruch bank were legally 
limited to one year and six weeks. The six weeks 
was perhaps time added to the regular term to per- 

[115] 



BANKING THROUGH THE AGES 

mit making a readjustment. The loans were al- 
lowed from six to ten per cent interest and as long 
as the interest was paid that was sufficient to prevent 
the calling of the loan. There was also a charge for 
the transportation and storage of securities. 

It seems strange that even at that time the coinage 
of Sweden was based on copper. As the value of 
copper continued to rise the issuing of bank notes 
became a losing venture. Another source of loss to 
the bank was through the extensive forging of notes. 

At all events the issue of bills soon exceeded the 
available funds and during the panic of 1664 the bank 
ceased to redeem them and they dropped in value 
even though they were made legal tender by law. 
In an effort to remedy this situation silver currency 
was introduced. 

Palmstruch himself was subjected to considerable 
criticism for intermingling the two departments of 
loan and exchange. The King, however, retained 
full confidence in him. He was allowed a substan- 
tial profit on the coinage of 500,000 hundred-weight 
of copper, received other presents and marks of es- 
teem and was finally made a noble of the kingdom. 

In 1668 the affairs of Palmstruch's bank was par- 
tially liquidated and it was merged into the new Riks- 
bank, or Bank of Sweden. Like the earlier institu- 
tion this also had two departments, one for loans and 
one for bills of exchange. The loan department 

[116] 




THE STOCKHOLM BOURSE IN THE MIDDLE OF THE 
EIGHTEENTH CENTURY 

This building was the Banking Headquarters in Stockholm in 
1782 and today houses one of the oldest Stock Exchanges in the 
world. While the exterior has not been altered, the accommo- 
dations and equipment are modern in every detail. 



BANKING IN THE LAND OF VIKINGS 

received deposits on interest and loaned money for 
six months or a year on security in hand or on mort- 
gage. In the exchange department, depositors by 
paying an extra fee had the privilege of drawing on 
the bank by check. But deposits might be made free 
if they did not bear interest. Thus the revenues of 
the King's mines, the taxes and the royal court cash 
were kept on deposit without interest. 

Launched under government auspices, the bank 
was given a site free and permitted to operate a spe- 
cial paper mill for the manufacture of bank notes. 
This government favour injured the business of the 
private money changers and bankers and they started 
slanderous rumours regarding the conduct of the in- 
stitution causing a run on the bank, which was 
promptly halted by a royal proclamation denouncing 
these misrepresentations. 

At first the Bank of Sweden was prohibited from 
issuing notes, but in 1701 the state deputies decided 
on a note issue as a separate section of the exchange 
department. The notes were made transferable but 
only by written indorsement. Nineteen years later 
these notes were actually at a premium, possibly be- 
cause of their great convenience in business. The 
currency was still on a standard of copper which was, 
in most cases, too bulky for transfer. 

About 1717 Charles XII drew heavily against the 
funds of the bank, to such an extent indeed, that its 

[117] 



BANKING THROUGH THE AGES 

credit was impaired. But strangely enough, the 
exactions of Baron Goetz, who was afterward be- 
headed, proved of benefit to the bank. He de- 
manded that the people deliver their gold and silver 
for copper checks, or tokens of coin, and they hurried 
to deposit their specie in the bank. Goetz sought to 
influence the King to seize these funds, but His Maj- 
esty refused and in consequence the bank acquired a 
great reputation for security. 

This was lost, however, in 1740 when government 
loans had forced the issue of unprotected notes until 
the liabilities reached about thirteen times the coin 
reserve. By 1750 the notes had declined in value 
and in 1776 a readjustment was necessary by which 
the old notes were redeemed at fifty per cent of their 
face value. The redemption was not by specie but 
merely by new transferable notes based on silver. 

By this time the finances of Sweden had come a 
long way from the old fur currency of the Vikings and 
the rest is merely a phase of modern financial history. 



[118] 




THE OFFICIAL BURNING OF THE ASSIGNATS IN PARIS 
END OF EIGHTEENTH CENTURY 



CHAPTER XIII 

FINANCES OF THE FRENCH REVOLUTION 

IN one sense the French Revolution was a great 
bankruptcy. It was the outcome of bankruptcy 
and it resulted in bankruptcy. Therefore it rep- 
resents the one period — and the most violent period — 
in the ferment of modern civilization when banking 
was virtually suspended. 

The beginning, progress and culmination of that 
vast cataclysm we call the Revolution may be 
summed up in three historic epigrams. The first is 
the slogan under which that magnificent monarch, 
Louis XIV, governed: "The state, it is I." The 
second is the prophecy of his successor, Louis XV: 
"After me the Deluge." And the third is that fe- 
rocious reply of Danton's to armed threats against 
the Republic: "The kings of Europe would chal- 
lenge us. We throw them the head of a king." 

It was the grandiose designs of Louis XIV, suc- 
cessful enough at first but all at last winding into a 
weary futility, which bled France white and even- 
tually resulted in the loss of the head of Louis XVI. 
The monarchy was exacting in its demands far be- 
yond the taxable capacity of the country. The na- 

[119] 



BANKING THROUGH THE AGES 

tion, or at least its favoured few, consumed far beyond 
its power of production. A tower of luxury and 
privilege had been built on a foundation of misery 
and poverty. Meanwhile the Encyclopaedists and 
the Physiocrats wrote and preached assiduously, 
hoping to philosophize and teach the coming genera- 
tion. In reality they sowed in men's minds those 
explosive seeds which were finally to blow the whole 
social and political structure to atoms. 

But in the beginning the Revolution had merely 
the aspect of a fiscal reform. 

Toward the end of the reign of Louis XVI all 
those questionable shifts to raise money which so 
pleased and satisfied his queen, Marie Antoinette, 
had failed. The financial condition of the govern- 
ment was desperate. The national debt amounted 
to 6,000,000,000 livres, or about $1,200,000,000. 
There was a yearly deficit of 150,000,000 livres which 
seemed to have become static. 

Underlying all this was a tax system inexcusably 
unjust. The nobles, who held title to one-third of 
France, and the clergy, who controlled one-fifth, paid 
no land tax whatever. This left a grossly dispro- 
portionate share to be paid by the common people, 
or Third Estate. The people also paid a tithe, or in- 
come tax, which had originally been one-tenth of the 
gross production, but under the exactions of the state 
had risen to a full quarter. 

[120] 



FINANCES OF FRENCH REVOLUTION 

As a result economic conditions were terrible. 
Most of the industries had been farmed out as official 
monoplies. It cost from 3,000 to 5,000 livres to be- 
come a master craftsman. The ordinary labourer 
was only able to earn about a bushel of wheat a week 
and the skilled workman about half again as much. 
Piled on top of this were an almost incredible number 
of legalized corvees, or forced labours due from the 
peasants to the nobles. 

To consider this festering situation the govern- 
ment convoked the States General, a mediaeval in- 
stitution faintly analogous to the British Parliament, 
which had not been called for centuries. To the as- 
sembled deputies the King delivered a speech urging 
a reform in the finances. 

The Third Estate, or commons, having by far the 
greater number of votes, promptly took matters into 
its own hands and organized a national assembly. 
At its demand the King declared on June 23, 1789, 
less than two months after the calling of the States 
General, that there should be no loans or taxes with- 
out the consent of the deputies. In so short a time 
France had changed from an absolute into a condi- 
tional monarchy. Necker proposed a tax of twenty- 
five per cent, and it was carried, but even this was 
wholly inadequate to the need of the country. 

On October tenth, Talleyrand took the first great 
step toward what was to end in a social revolution. 

[121] 



BANKING THROUGH THE AGES 

He engineered through the assembly a measure 
nationalizing all church property. This was a com- 
plete expropriation, though the State agreed to con- 
tinue paying clerical salaries. 

Necker also sought to bolster the financial situa- 
tion with a bill to make the Caisse d'Escompte, which 
was a private banking company founded in 1776, a 
national bank, with a proviso that it advance 170,- 
000,000 livres to the treasury. In return it was to 
have the privilege of issuing 240,000,000 livres of 
national bank notes. Unfortunately, however, this 
bank was already in a shaky condition because of 
previous loans wrung from it by the government, and 
it was considered the part of wisdom to lay the bill 
on the table. 

In November the government virtually confessed 
bankruptcy by suspending all payments until Jan- 
uary 1, 1790. Desperate attempts at rehabilitation 
followed. A strange plea for voluntary gifts was 
issued and produced what might have been expected. 
Church and state property to the amount of 400,- 
000,000 livres was ordered sold. Despite the fact 
that 184,000,000 livres had been pried out of the 
Caisse d'Escompte, it was forced to lend the govern- 
ment 80,000,000 livres more. 

The most significant step, however, and typical of 
the frenzied finance of the revolution, was the issue 
of 400,000,000 livres in assignats. These were bonds 

[122] 



FINANCES OF FRENCH REVOLUTION 

or promissory notes secured by the nationalized 
church property, the public domain, and later, by the 
estates of the emigres. The first issue bore interest 
at five per cent and none was printed with a face 
value of less than 200 livres. It is possible to justify 
this first attempt to stem the financial tide but it 
soon led to the wildest monetary excesses. On April 
15, 1790, the interest was reduced to three per cent 
and the assignats were made forced legal tender. 

On September twenty-ninth, of the same year the 
limit of the issue of assignats was raised to 1,200,- 
000,000 livres and all interest on every issue, not 
alone of the present and future, but also of the past, 
was abolished. The Assembly had reversed itself in 
an ex post facto law. Thus, having made a good 
start with the assignats, 600,000,000 were authorized 
on June 19, 1791, and it was decided to issue them in 
smaller denominations. 

All this time innumerable finance committees were 
at work with a firm determination to solve the finan- 
cial problems before them but without achieving any 
commensurate results. The difficulties piled up for 
years under the old regime and fresh crises spring- 
ing from unsettled revolutionary conditions proved 
too much for the deputies. 

The sale of the national estates, embracing chiefly 
the old church properties, did not yield the expected 
profit. They were largely sold on small partial pay- 

[123] 



BANKING THROUGH THE AGES 

ments and the nominal purchasers in too many cases 
cut down the timber, got rid of the furnishings, dis- 
posed of everything else movable and simply de- 
faulted on the subsequent payments. Perhaps the 
only beneficial result flowing from the financial re- 
forms of the Constituent Assembly was the abolition 
of inequitable taxes and the detested corvees. 

But even these were hastily abolished before other 
and better sources of income had been developed. 
As a result, the legislative assembly which convened 
October 14, 1791, was obliged to issue 3,300,000,000 
livres more in assignats within the next seven months. 
Such enormous issues could have but one effect. 
Value began to evaporate from the assignats. Dur- 
ing the year 1792 they depreciated from seventy-two 
to fifty-one per cent of their face value. 

On January 25, 1793, King Louis XVI was 
guillotined. War with most of the rest of Eu- 
rope followed as a matter of course. Driven on by 
the need of financing its campaigns, the new republic 
once more resorted to an issue of assignats. The 
consequent drop in their value was as sudden as it 
was irretrievable. By July they had reached twenty- 
three to the hundred. 

The Convention had been responsible for the issue 
of 7,274,000,000 of assignats. But the Directory, 
infected by a kind of frantic insanity to raise money, 
limited the issue of assignats only by the capacity of 

[124] 




•H^rie 760 



HB5TS15 1 



11? 7 $2 













7i.° 7%% 




TJ-i !! se«JT76o" 




ONE OF THE FRENCH ASSIGNATS — 1792 



FINANCES OF FRENCH REVOLUTION 

the presses. The total was raised to 45,578,000,000. 
The price to which they fell may be guessed. 

All sorts of bolstering legislation was attempted. 
Various severe terms of imprisonment were decreed 
for those who refused to accept them as legal tender. 
But the people, now finally aware of the value of such 
legal tender, simply hoarded their metal money and 
this disappeared entirely from circulation. In terms 
of assignats, the prices of commodities rose enor- 
mously. Sugar, for example, sold at 400 livres a 
pound. Soap brought 230 livres a pound. 

The frenzy of the revolution had now spent itself, 
but not its effects. When Napoleon set out on Feb- 
ruary 23, 1796, to take command of the army in Italy, 
the treasury, exercising the utmost exertion, could 
raise for him but 2,000 louis in coin. This he carried 
in his carriage. At Nice he allotted four louis to each 
general, but the amount as expressed in assignats 
seemed fabulous. Perhaps at this time the assignats 
were worth one per cent of their face value. 

On May 21, 1797, all assignats were demonetized 
and repudiated. 

The government had found a new source of in- 
come — loot. Its armies had already demonstrated 
their ability to support themselves from the countries 
which they occupied. Napoleon discovered that he 
could force loans so successfully from the Italian 
cities that he could not only finance his soldiery but 

[125] 



BANKING THROUGH THE AGES 

was able to send substantial sums to the government 
at Paris. 

As early as 1796 the necessity for a national bank 
had been foreseen. But it was only after the coup 
d'etat by which Napoleon made himself First Consul 
that it became a reality. Napoleon directed M. 
Mollien to organize the Bank of France, pointing 
out the commercial losses sustained through the lack 
of such an institution and the advantages to industry 
inherent in its operation. At first the bank was per- 
mitted to transact business only in gold and silver, 
a provision due to poignant experience with the ill- 
fated assignats. 

Subscriptions for the new bank were opened in 
January, 1800. It was capitalized at 30,000,000 
francs, split into 30,000 shares at 1,000 francs each. 
As a gesture of approval and support Napoleon him- 
self subscribed for 100 shares. In effect, the bank- 
ruptcy of the revolution had ended. 

Though the revolution itself had ended, it left in its 
wake a disturbing influence that lingered long in the 
minds of men. In a short while the make-believe 
Mediaeval Empire which Napoleon so spectacularly 
erected was also to end. The currency convulsions 
which shook America during our revolution, as well as 
those that shook France, were not to be repeated on 
any such national scale until more than a century 

[126] 



FINANCES OF FRENCH REVOLUTION 

later. The world, wearied with strife, had slowly and 
reluctantly decided to modernize itself. 

For more than a decade Europe had been a vast 
battlefield with its national boundaries fluctuating 
like tree shadows on a windy day. It now became a 
congerie of nations intent on restoring some measure 
of prosperity, and some semblance of social order and 
stability. Overseas, new nations were rising to 
power. Colonies were springing into a new import- 
ance. Communications were being reestablished. 
Trade revived, then flourished. And the banker 
resumed his natural function. 

******* 

In this modern world, as it has gradually taken 
shape from the wild chaos of ancient and mediaeval 
times, banking has assumed a significance far beyond 
what could have been anticipated at any period dur- 
ing the early history of civilization. It ceased to be 
the convenience of a class, and became the necessity of 
a people. It is now one of the foremost functions of 
government. Our social and economic organization 
is inconceivable without the great banking systems 
which knit the whole commercial fabric together. 
The tide of our prosperity rises and falls through, 
and is gauged by our banking institutions. Our 
material civilization is indeed built foursquare on 
these institutions which might be called the trans- 

[127] 



BANKING THROUGH THE AGES 

formers through which the twin currents of industry 
and commerce flow. 

Perhaps the future historian will look back to the 
boiling commercial activity of to-day and, pausing for 
a salient phrase, set down this age in his record as 
The Age of Banks. 




[128] 




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